Germany in 1914 wasn’t just an industrial power, it had become the European industrial power (in the world behind only America in terms of raw production). In 1913, for example, Germany produced ~19.3 million tons of pig iron compared to the UK’s ~10.4 million and the US’s ~31.5 million. Austria-Hungary, France, Russia, and Belgium combined in 1913 produced around 14.1 million tons. Germany’s defeat in the First World War came from two aspects. The first and most direct was the collapse of the German government caused largely by a nearly 5 year long blockade by Britain. However, this collapse was largely the result of a lack of food imports. Even if other vital war supplies were also lacking, the industry itself was still in place.

This leads to the second aspect which defeated Germany, which was on the battlefield. By 1918 the German army was exhausted, and increasingly outnumbered due to the arrival of US troops on the western front. The German command could see this, and many believed the war could not be won after the failure of the German spring offensive earlier that year. However despite this, German territory had hardly been touched by the war. The fighting for Germany had been almost entirely in northern France or in Imperial Russian territory. So again, while the army was beginning to falter, Germany’s industry had hardly been damaged. There wasn’t really industrial bombing like we see in WW2 that caused widespread damage beyond the frontlines of the war.

So while Germany faced economic (and more so, societal) turmoil in 1919, the underlying industry of the country was still incredibly solid. Germany lost some land in the treaty of Versailles, but most of its industrial centres (most importantly the Ruhr) remained in Germany. By 1939 Germany had also gained a fair amount of territory that had previously belonged to Austria-Hungary, for example Austria itself as well as much of Czechoslovakia by 1938 (the Czech lands taken particularly were incredibly useful militarily, as they were the location of military industries such as Skoda Works, the company which built German panzers).

Versailles had as you said placed massive reparations upon Germany, partly due to the cost of rebuilding Northern France from the damage of the war that Germany had largely avoided. However of the ~132 billion marks the reparations initially set out, by 1932 Germany had paid only about 21 billion of this. In 1929 the Wall Street crash had seen the reparation repayment system in Germany collapse, and once Hitler took power in 1933 he refused to continue any Versailles reparations.

Versailles had also banned Germany from having a large army, navy, or any airforce. However Weimar Germany almost immediately sought ways around this, for example in the 20s a secret program in collaboration with the USSR let Germany test new tank doctrines and technology in Russia. Once Hitler took power he began to build up the german military in full view of the world, but by this time the victorious countries of ww1 did not have the economic or political capital to do more than protest, despite still being militarily more powerful. In some cases hitler was able to attain compromises on Versailles, such as a deal with Britain adjusting the limits on Germany’s navy to be ~one third of the UK’s fleet. In practice what this allowed was for Germany to begin rebuilding their fleet (Uboats in particular but also notably pocket battleships) at full speed and in the open, as they were nowhere near the newly agreed upon limits.

So by 1939 Germany was in a strong position in Europe, both economically (edit: in terms of industry is maybe a better phrase than economically; as someone mentioned below - but since seems to have deleted the comment - the Nazi German economy was reliant on very large debts which were in turn assumed by Hitler to be repayable through military conquest) and militarily. It was not however - at least on paper - particularly stronger than its continental rival, France. It’s important to remember that Germany’s incredible early successes in WW2 were in large part due to its use of new types of warfare (blitzkrieg most notably), enemies who were largely unprepared for these new types of warfare, enemies who (particularly in the case of U.K. and France) were entering the war in a state of extreme reluctance, and a fair dash of luck. While Germany’s economy and industry was necessary for their victories in the early years of WW2, it had not, at least on paper, put them decisively above their French opponents. Many observers still believed the French army to be superior to Germany’s in 1939.

So in short, WWI caused German society to collapse, but did not do much damage to the country’s underlying industry. Versailles placed burdens upon Germany but these ultimately were largely ignored or later compromised upon, both in the build up of German military strength and in the reparations Germany was meant to pay. Germany lost some territory in the treaty but not its vital industries, and by 1939 had gained new territories which were important assets economically and militarily. All in all Versailles didn’t damage Germany enough for it not to quickly regain industrial supremacy in Europe, and by 1939 Hitler’s aggressive rearmament policies, which had been de facto accepted by the Versailles signatories, saw their military as one of the most modern and powerful in the world (though on paper not obviously stronger than France should have been).

The subreddit has an FAQ section about Nazi Economics.

/u/kieslowskifan and /u/vonadler and /u/Caherdaniel et al. have answers for you.

I think more has to be revealed about who financed the transition. I know geopolitics comes into play here. It's on record that Britain and the US saw Hitler as a convenient tool to counter Communist expansion for example. But more has to be made of what banks were involved in financing the regime. I've saw articles in the past that bank of America and other American corporations / British too were heavily involved in financing the grass roots of Nazi expansion. These unsettling details are often glossed over when discussing the rise of Hitler.