German chemical-pharmaceutical industry production drops 3% in H1 2026 as investments slump
German chemical-pharmaceutical industry production fell 3% in the first half of 2026, with revenue down to €106 billion and a third consecutive year of declining investment, the VCI reports.
The Verband der Chemischen Industrie (VCI) said output in Germany’s chemical-pharmaceutical industry declined by three percent in H1 2026 compared with the same period a year earlier. Sales fell one percent to €106 billion, while capital spending on tangible assets continued to retreat for a third straight year.
Plants remain underutilized, exports are weak and margins are squeezed by high costs and aggressive international competition.
Production Falls 3% in First Half
The VCI’s half-year figures show a broad-based contraction across production lines rather than a single subsector weakness.
Several companies reported lower operating rates as demand softened and inventories adjusted after pandemic-era surges.
Capacity utilization remained below pre-crisis norms, according to the association, leaving many facilities operating well short of full output.
The group said the drop in production was accompanied by weaker foreign sales, reflecting subdued global demand and competitive pricing pressure from Asia.
Sales and Margins Under Strain
Turnover in the industry slipped to €106 billion, a modest decline that nonetheless masks growing pressure on earnings.
Rising input costs, energy expenses and logistics challenges have eroded profitability for many manufacturers.
VCI officials highlighted that revenue declines were exacerbated by stiff international competition, which has compressed margins and limited pricing power.
Companies with complex supply chains or high energy intensity reported the sharpest falls in profit rates.
Investment Decline Deepens, 15% Below 2023
Investment in tangible assets fell again, marking the third consecutive year of contraction for capital expenditure in the sector.
VCI data indicate that investment levels are roughly 15 percent below the comparable figure for 2023, a shortfall the association called “particularly worrying.”
The reduction in spending has implications for long-term competitiveness, as delayed modernization and capacity upgrades can weaken productivity.
Industry analysts warn that sustained underinvestment could hamper the sector’s ability to respond to future demand cycles and to decarbonisation requirements.
Firms Shift Spending Abroad, Survey Shows
A VCI member survey revealed that nearly half of respondent companies — 45 percent — plan to reduce domestic investment, while 40 percent intend to increase spending abroad.
Respondents cited high local costs and political uncertainty as primary drivers for reallocating capital to overseas sites.
The trend reflects a broader reorientation of multinational strategies toward lower-cost production locations and markets with faster permitting and investment incentives.
If sustained, the shift could further erode Germany’s industrial base and affect high-skilled employment linked to chemical and pharmaceutical manufacturing.
Temporary Boost from Middle East Disruptions
VCI President Markus Steilemann described a short-lived uptick in activity tied to geopolitical tensions in the Middle East, which prompted precautionary stockpiling.
Companies filled inventories to hedge against possible supply disruptions from the Strait of Hormuz, and Asian competitive pressure eased temporarily when shipping routes were disrupted.
Steilemann cautioned that this stimulus represents “a pause, not a structural turnaround” for the sector.
He warned that once supply chains normalize and precautionary stocks are worked down, the underlying weaknesses — weak export demand and high costs — will reassert themselves.
VCI Lowers Annual Forecast and Urges Policy Action
Based on the half-year figures, the VCI trimmed its full-year production forecast to a 1.5 percent decline for 2026, down from a previous projection of stagnation.
The association called on the German government to implement a decisive reform agenda to shore up the industrial location.
Among the measures the VCI recommends are more competitive corporate taxation, reductions in labor-related costs, accelerated permitting procedures and a sustained effort to cut bureaucratic hurdles.
Industry leaders argue these steps are necessary to retain investment, protect jobs and maintain the sector’s global competitiveness.
The German chemical-pharmaceutical industry faces a turning point as production and investment trends diverge from longer-term needs, with immediate policy choices likely to shape the sector’s trajectory.
