Germany’s chemical and pharmaceutical industry is still trapped in a deepening crisis, with hopes of a strong recovery failing to materialize in the first half of 2026.

 

Production fell by around three percent compared with the same period last year, while industry revenue dropped one percent to €106 billion, according to the German Chemical Industry Association (VCI). 

 

At the same time, investment continued to decline for the third year in a row — a development the association says should serve as a serious warning signal for Germany’s industrial future.

 

“The half-year results are disappointing,” summarizes VCI President Markus Steilemann. “A slight recovery is no reason to sound the all-clear. This is primarily due to special factors resulting from the armed conflicts in the Middle East. We are only experiencing a respite, not a trend reversal. However, I remain fundamentally convinced of the great potential of our industry as a driver for the necessary transformation towards sustainability and resilience.”

 

The modest stabilization seen in domestic business has been supported by temporary factors, including companies building up inventories to guard against possible supply disruptions linked to geopolitical tensions. Meanwhile, competitive pressure from Asia has eased temporarily following disruptions around the Strait of Hormuz.

 

But the underlying picture remains bleak. Exports continue to struggle, many production sites are operating below capacity, and output and sales remain significantly below 2021 levels.

 

Companies are bracing for another difficult period ahead as rising costs, weak demand and fierce international competition continue to weigh on profitability. The VCI expects production across the sector to decline by 1.5 percent for the full year, while warning that geopolitical uncertainty makes further forecasts difficult.

 

The sharp decline in investment has become one of the industry’s biggest concerns.

 

Fixed-asset investment is now around 15 percent below 2023 levels, according to the VCI. The association argues that Germany’s wider economic challenge is becoming increasingly visible, with insufficient investment in new facilities and future technologies while production capacity is being reduced across Europe.

 

High energy prices, elevated production costs and unfavorable business conditions in Germany are among the main barriers preventing companies from investing, the VCI says.

 

The association is calling on the German government to turn individual policy measures into a broader structural reform program aimed at restoring competitiveness.

 

“The reform package of the CDU/CSU-SPD coalition is the first serious attempt in years to break the regulatory constraints on Germany as a business location. This course must be pursued consistently. Additional burdens would only exacerbate the situation,” emphasizes Steilemann.

 

The VCI says action is still urgently needed. Its latest member survey found that more than 80 percent of companies believe policymakers are not doing enough to address the risks of deindustrialization.

 

The association is pushing for: More competitive corporate taxes; Lower labor costs; Faster approval procedures; Reduced bureaucracy.

 

Despite the crisis, the VCI insists Germany still has the foundations needed to remain a global industrial leader.

 

“Germany has the industrial base and the innovative strength. Now is the time to unleash these strengths once again. This also requires a shift in mindset towards greater openness, a willingness to change, and personal responsibility. Crucially, we must recognize that the costs of inaction will outweigh the costs of joint reforms.”