VCI: German chemical industry hit by weak demand, structural burdens

Frankfurt, Germany – The German chemicals industry is grappling with a worsening downturn, marked by faltering demand, cost pressures and long-standing structural issues, according to the latest survey by chemicals association VCI.

Nearly 40% of companies said their business activities are currently “severely or very severely hampered” by a lack of orders — a figure that has continued to rise, VCI reported 22 July.

“The economic situation in the industry remains difficult,” the association said, adding that expectations for domestic sales this year remain negative.

Foreign markets offer some hope, with over 70% of companies expecting demand to recover only in 2026. “Hopes are once again shifting to the future,” VCI noted.

On the supply side, companies continue to struggle with “excessive bureaucracy,” high energy and raw material costs, slow permitting, and labour shortages.

The "location problems", VCI said, remain unresolved and, in many cases, are worsening.

Nearly half of surveyed companies expect earnings to fall this year, while just 27% anticipate any improvement.

US tariff policy has also emerged as a new concern, with businesses warning that higher export prices and import costs will hit already strained production margins.

“The negative effects are likely to affect almost all companies in the industry,” VCI warned, saying “hardly any company expects no impact.”

Companies are also uncertain on how best to respond to the tariffs, with strategies ranging from price adjustments to relocating production or diversifying markets.

“The range is wide, but the measures do not provide quick relief,” the association noted.

On investment, the mood remains cautious. “Reluctance still prevails,” VCI said, citing "underutilised capacity, lack of demand, problematic location conditions, and poor profitability."

The mix of factors, according to VCI, has led the majority of companies in Germany and Europe to report declining investments over the past three years.

The situation, meanwhile, is different abroad, particularly in the US and China where a majority of companies investing abroad reported increases. 

Two-thirds of companies indicated they would increase investment in Germany if demand improved or if the federal government followed through on promised reforms.

“Measures to reduce electricity prices, tax burdens and bureaucracy would be game-changers,” the association stated.

But confidence remains low: “The disappointments with the economic policies of recent years have been too great.”