Germany’s chemical industry staged a striking turnaround in August, with business sentiment surging into positive territory for the first time in four years as companies reported stronger demand, brighter expectations and a sharp improvement in export prospects.
The business climate index jumped to minus 2.4 points, from minus 26.3 points in July. Even more notably, companies’ assessment of their current business situation swung to plus 11.6 points, up from minus 14.6 points a month earlier.
Expectations for the months ahead also improved sharply, rising to minus 15.5 points from minus 37.2 points in July.
“Supply failures in Asia resulting from the ongoing blockade of the Strait of Hormuz are driving up demand for German-made chemical products,” says ifo industry expert Anna Wolf.
The industry is now preparing for further gains. With no signs that geopolitical tensions are easing, companies expect the upturn to continue, with production plans pointing to an expansion in output.
Export prospects have strengthened dramatically as well. The balance for export business climbed to plus 10.1 points, compared with minus 22.7 points in July.
At the same time, pressure on supply chains has eased. Only 13.8 percent of chemical companies reported material shortages in the third quarter, down sharply from roughly one in three companies in the second quarter.
But the recovery remains fragile. High energy prices and elevated costs at German production locations continue to weigh heavily on the industry. Despite the improved business climate, companies still expect further job cuts.
In the medium term, however, government investment could provide another boost to demand.
“In the medium term, however, government infrastructure and investment programs could support demand for chemical inputs, as long as the announced projects are implemented swiftly,” says Wolf.
