Germany’s chemical and pharmaceutical industry suffered a fresh setback in the third quarter of 2026, with production, orders and sales declining as temporary gains from earlier in the year fizzled out and mounting cost pressures deepened the sector’s woes.

The German Chemical Industry Association (VCI), in its latest quarterly report, said the industry had lost momentum after a brief upturn in the spring, when precautionary orders triggered by the Middle East conflict temporarily boosted demand.

That support has now largely disappeared, exposing the underlying weakness of the industry. Falling order intake, declining production and weaker sales compared with the previous quarter point to an increasingly difficult business environment.

The sector also faced fresh disruptions during the July-September period. Exceptionally low water levels hit logistics, while key customers, particularly in the automotive industry, cut production. Weak industrial activity across Germany and Europe further dampened demand for chemical products.

The pharmaceutical business, meanwhile, remained volatile amid considerable uncertainty in the US market.

But soaring energy and raw material prices have emerged as another major threat, intensifying pressure on manufacturers already grappling with weak demand and underused production capacity.

VCI Managing Director Wolfgang Große Entrup delivered a blunt assessment of the situation, warning that the spring recovery had already run out of steam.

“The spring upturn has already fizzled out. Production, orders, and sales in the German chemical industry are declining. Now, gas and electricity prices are exploding. Policymakers must tackle energy costs very quickly. Meanwhile, Brussels is tightening the next cost screw with the ETS reform, putting the cart before the horse. Forcing investments before affordable green electricity, hydrogen, and networks are available – that's not how transformation works. That's how deindustrialization works.”

Production plunges as energy costs soar

The latest figures underline the industry's deteriorating performance.

Seasonally adjusted chemical and pharmaceutical production fell by 4.0 per cent in the third quarter compared with the previous quarter, leaving output 3.5 per cent below the level recorded a year earlier.

Capacity utilisation edged up to 76.6 per cent but remained significantly below its long-term average. The VCI said the improvement was likely driven primarily by plant closures and capacity reductions rather than a meaningful increase in production.

Sales also weakened. Seasonally adjusted industry revenue dropped 2.7 per cent to €53 billion during the quarter. Although sales were 5.8 per cent higher than a year earlier, the increase was entirely attributable to price movements. In real terms, revenue remained below the previous year's level.

Producer prices rose 1.1 per cent quarter-on-quarter and were 7.1 per cent higher than a year earlier.

Energy costs climbed even more sharply. Gas prices surged by almost 40 per cent compared with the previous quarter, while electricity prices jumped by more than 30 per cent, adding to the financial strain on manufacturers.

Recovery remains elusive

The VCI warned that the industry's economic position in Germany remains under considerable strain, despite stronger performances by internationally active companies in other global markets.

The association said the sector was, at best, stabilising at a low level, with no sustained recovery currently in sight.

Its outlook for the full year remains bleak. The VCI is maintaining its forecast of a 1.5 per cent decline in chemical and pharmaceutical production in 2026.

Sales, however, are expected to increase by 3.5 per cent, supported by significantly higher producer prices. The association stressed that this projected growth would reflect higher prices rather than increased production volumes.

The latest report paints a troubling picture of an industry caught between weakening industrial demand, volatile international markets, rising energy bills and mounting regulatory costs.

For Germany's chemical and pharmaceutical manufacturers, the temporary spring reprieve has proved short-lived. The deeper structural pressures remain, and a meaningful turnaround is becoming increasingly difficult to see.