Germany's chemical and pharmaceutical industry suffered a weak start to 2026, with production falling sharply and industry leaders warning that a meaningful recovery remains out of reach amid rising geopolitical tensions and escalating costs.
According to the latest quarterly report from the German Chemical Industry Association (VCI), seasonally adjusted production across the sector fell 2.8% in the first quarter compared with the previous quarter and was nearly 6% lower than a year earlier.
The decline was driven largely by a sharp drop in pharmaceutical production after companies accelerated output in 2025 to get ahead of threatened U.S. tariffs. Chemical production posted a slight increase but remained below year-earlier levels.
Capacity utilization edged up to 75.1%, still well below profitable levels, while job cuts continued across the industry.
The sector is also facing mounting pressure from higher energy, raw material and transportation costs linked to the conflict in the Middle East. The closure of the Strait of Hormuz has intensified supply chain disruptions and pushed up prices for oil, gas and naphtha, key inputs for chemical manufacturers.
While some companies have benefited from a temporary increase in orders as customers build inventories and hedge against supply risks, the VCI said it does not expect a sustained recovery in 2026.
VCI Managing Director Wolfgang Große Entrup comments: “The chemical industry is struggling, while the pharmaceutical sector is preparing for even greater challenges. A few stable figures do not constitute a trend reversal. We are not seeing a sense of optimism, but rather geopolitical hoarding.
"This is a panicky interim peak, from which parts of the chemical industry are also benefiting in the short term. The stark truth is: the chemical industry remains under constant stress – burdened by rampant bureaucracy, high costs, and global turbulence.
"Germany will continue to lose competitiveness if Berlin and Brussels do not take countermeasures. We have little influence over geopolitical crises – but we do over our business environment."
He added: "A policy of small steps is no longer sufficient. What is crucial now is strong leadership, reliability, and a clear industrial policy. This also applies with regard to China. The massive capacity expansion and state-subsidized production are increasingly putting European industry under pressure and hitting many sectors hard.
"But it is also clear: blanket protectionism and new trade barriers are not a good solution. The important thing is: first and foremost, existing trade defense instruments must be used effectively – only then will the situation improve. It helps quickly. Europe needs a confident and fair approach to China – with instruments that effectively limit distortions of competition without jeopardizing international value chains.”
Sales rose 2.1% from the previous quarter to €50.9 billion, but remained 5.4% below the level recorded a year earlier. Industry officials said additional orders received early in the year likely reflected precautionary stockpiling as tensions in the Persian Gulf escalated.
Producer prices increased slightly by 0.2% from the previous quarter, ending a prolonged downward trend. However, prices remained about 1% below year-earlier levels, while input costs climbed sharply, particularly for crude oil and petroleum-derived products.
Given the growing geopolitical uncertainty, the VCI said forecasting remains difficult. Nevertheless, it expects industry production to decline again over the full year. Higher prices may support revenues, but profit margins are expected to remain under significant pressure.
