The former European engine has completely stalled! All of Europe is left dumbfounded—could China have just stumbled upon a massive windfall?

In March 2025, the German Bundestag voted to amend the constitutional 'debt brake,' opening the floodgates for large-scale borrowing. Shortly thereafter, a dedicated €500 billion infrastructure fund was approved, and defense spending was exempted from conventional debt ceilings. Combined with existing climate funds and other earmarked expenditures, the overall fiscal envelope ballooned sharply in 2025. The federal budget deficit rate surged from 0.6% in the previous year to 1.8% in 2025; according to the 2026 draft budget, cumulative shortfalls over the coming years have already reached €172 billion. Fiscal space is finite. Multi-trillion-euro long-term plans have filled the entire budgetary pipeline—leaving little room to urgently deploy funds when crises arise. The €1.6 billion isn’t what Berlin deems sufficient; it’s simply all Berlin can muster. So what about those long-term plans? Surely, pouring trillions into them must yield results? On paper, the sum is indeed enormous. Goldman Sachs estimates it will contribute roughly 0.5 percentage points to GDP growth in 2025; the German Banking Association is more optimistic, projecting a 0.8-percentage-point boost in 2026. But paper figures shrink when they hit reality. The €500 billion infrastructure fund was approved in March 2025. By year-end, what was its actual progress? Tracking by multiple institutions shows that spending on infrastructure and defense lagged significantly behind expectations. MFS Investment Management offers an even more conservative assessment—suggesting the plan may have lifted GDP growth by only 0.2 percentage points in 2025, less than half of Goldman Sachs’ estimate. Why isn’t the money being spent? The answer lies plainly in reports issued by German institutions themselves. A late-2025 report by the German Chemical Industry Association cites one telling figure: one-fifth of companies plan to relocate production overseas or shut down operations entirely, while one-tenth are considering outright closure of domestic production facilities. The construction sector fares no better—lengthy permitting procedures, shortages of skilled labor, and declining project-bidding capacity among firms all constrain execution. As ifo Institute Director Clemens Fuest explicitly cited 'cumbersome bureaucratic procedures'—here, they materialize as a tangible dam: funds flow out of the Finance Ministry, but then must pass through state-level approvals, municipal planning, environmental impact assessments, and public tendering processes… before finally becoming concrete and steel on construction sites, potentially taking a full year—or longer. This creates an awkward paradox: the government frantically pumps water into the pipe, yet at the other end—the enterprises capable of executing projects, the workers ready to break ground, the local governments able to complete approvals—the pipeline is shrinking. The harder it pumps, the more it leaks. Money sits idle in bank accounts; GDP remains stagnant; both lie motionless side by side, unable to pull each other forward. A January report by the European Chemical Industry Council (CEFIC) provides stark numbers illustrating this trend: between 2022 and 2025, new investment and capital expenditure in Europe’s chemical industry plummeted from 2.7 million tons of added capacity to just 300,000 tons—a staggering 81% decline. Meanwhile, shuttered capacity totaled 37 million tons—over 100 times greater than newly added capacity. Germany alone accounted for 8.8 million tons of closures—25% of Europe’s total—and ranked first among EU member states. On one side, governments pour money relentlessly into the economy; on the other, industry drains away even faster.

Are chemical industry giants withdrawing from the European market?

Capital investment plays a critical role in securing the future development and sustainability of the chemical industry. Europe’s chemical sector must invest in both existing infrastructure and new production facilities to ensure its continued vitality. However, the EU’s chemical capital expenditure growth lags behind that of China and the United States. Between 2013 and 2023, EU capital assets rose from €20 billion to €32 billion—a 60% increase—while China’s and the U.S.’s rose by 79% and 64%, respectively. 1.5 Declining Global Share of EU Chemical R&D Expenditure The EU’s share of global chemical R&D expenditure has declined, and its R&D spending growth trails that of China and the U.S. Between 2013 and 2023, China’s share of global chemical R&D rose from 25% to 32%, whereas shares for the U.S., the EU, and Japan all fell—by 1%, 3%, and 5%, respectively. EU chemical R&D spending increased from €8 billion to €10 billion—a 25% rise—while China’s surged from €9 billion to €18 billion (+100%) and the U.S.’s climbed from €8 billion to €12 billion (+50%). Chinese R&D spending in the sector more than doubled over the past decade. Europe’s chemical industry remains committed to improving its overall sustainability performance and recognizes the importance of both disruptive technologies and continuous improvements to existing ones. 2. Russia-Ukraine Conflict Intensifies European Energy Price Hikes In February 2022, Russia’s invasion of Ukraine fundamentally disrupted Europe’s energy landscape, triggering sustained, sharp increases in energy prices across the continent. Prior to the war, Europe was heavily dependent on Russian energy—importing approximately 40% of its natural gas, along with substantial volumes of oil and coal, from Russia. The conflict and subsequent sanctions drastically reduced Russian energy imports. According to the Kyiv Independent, the EU has pledged to fully eliminate its dependence on Russian energy by 2027—but this transition poses major challenges, including new dependency risks and persistent volatility in global energy markets. The European Chemical Industry Council (CEFIC) stated in its report: 'Weak demand and declining business confidence continue to challenge the chemical industry across all 27 EU member states. Moreover, natural gas prices remain 3.3 times higher than those in the U.S., severely undermining Europe’s global competitiveness.' According to CEFIC, energy and fossil feedstocks constitute the true competitive constraint for the chemical industry—accounting for 30–40% of total costs. 2.1 European Ethylene Production Costs Disadvantaged vs. North America and the Middle East Global conditions in 2023 clearly revealed Europe’s competitive disadvantage relative to the U.S., China, and the Middle East—driven largely by high energy and feedstock costs. In 2023, Europe’s ethylene production cost—a key indicator of cost competitiveness—was 3.2 times higher than that of the U.S., underscoring this gap decisively. According to Dow’s annual report, Europe continues to face exceptional challenges and remains the world’s most expensive region for chemical production. Stagnant demand, tightening regulation, and supply chain disruptions are placing immense pressure on Europe’s chemical industry. The result is a negative trade balance in chemicals: European chemical output has declined by roughly 20% over the past two years. Since 2021, the EU has been a net importer of chemicals—meaning its chemical industry has fallen far behind those of countries like China.

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