Why has the VCI downgraded its 2026 production forecast for Germany's chemical and pharmaceutical industry, and what does this signal about the sector's outlook?

The VCI downgraded its 2026 full-year production forecast from 'flat' to a 1.5% decline due to a 3% year-on-year drop in output during the first half of 2026 — with pure chemicals down 3% and pharmaceuticals down 1.5% — alongside a 1% sales decline to €106 billion, despite a 2% rise in producer prices. The association described the first-half performance as 'disappointing', stressed that recent market improvement is only a 'temporary respite, not a trend reversal', and highlighted persistently low capacity utilization (75–78%), shrinking export orders, and sustained margin pressure from high costs and intense international competition. This downgrade — following earlier suspensions of forecasts in March and May 2026 due to Middle East uncertainty — reflects markedly diminished confidence in recovery, underscoring a structural crisis rather than cyclical softness.

What are the main drivers behind the ongoing contraction of chemical production capacity in Germany and Europe, and how are companies responding?

The main drivers are chronically high energy and production costs — especially industrial natural gas prices, which averaged 3.3 times higher in Europe than in the US during Jan–Apr 2026 — leading to eroded profitability, reduced investment, and strategic relocation. Fixed capital expenditure has fallen ~15% since 2023, and around three-quarters of German energy-intensive chemical firms are shifting investments overseas to regions with lower raw material costs and lighter regulatory burdens. This has accelerated capacity withdrawal: since 2022, ~25 million tonnes of European chemical capacity — 9% of the 2021 total — have been shut down or sold, with Germany accounting for ~7 million tonnes. Major firms like BASF (cutting 4,800 jobs, >50% in Germany, targeting 20% lower core cash fixed costs by 2029) and Evonik (planning ~3,200 more layoffs by end-2029, adding to 2,800 prior cuts) exemplify large-scale restructuring, while VCI urges government reforms on taxation, labor costs, and bureaucracy to counteract the exodus.

VCI Report: German Chemical Industry Faces Deep Troubles

Jul 21, 2026

The German Chemical Industry Association (VCI) downgraded its 2026 production forecast by 1.5%, citing a 3% H1 output decline and high energy costs. Major firms like BASF and Evonik are cutting jobs and shifting investments overseas due to competitiveness pressures.

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VCI Report: German Chemical Industry Faces Deep Troubles

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