First-Half 2026 Review

No recovery in sight as investment continues to decline.

• Production in the first half around 3% below the previous year’s level
• Sales down to €106 billion
• Investment falls for the third consecutive year
• Determined structural reform needed to strengthen Germany as an industrial location

Germany’s chemical and pharmaceutical industry remains in crisis. While the first half of 2026 showed a modest improvement compared with the second half of 2025, there is still no sign of a sustained recovery. Production was around 3 percent below the level of a year earlier, while sales declined by 1 percent to €106 billion. At the same time, investment continues to fall—for the third consecutive year. For the German Chemical Industry Association (VCI), this is a clear warning signal.

“The first-half results are disappointing,” said VCI President Markus Steilemann. “A slight uptick is no reason for complacency. It is largely the result of temporary factors linked to the armed conflict in the Middle East. What we are seeing is a brief respite, not a turning point. Fundamentally, however, I remain convinced of our industry’s enormous potential to drive the necessary transformation toward sustainability and resilience.”

Companies are currently rebuilding inventories in response to the conflict in the Gulf region to guard against potential supply disruptions. At the same time, competitive pressure from Asia has temporarily eased as a result of the closure of the Strait of Hormuz.

Against this backdrop, domestic business in Germany’s chemical and pharmaceutical industry has shown signs of stabilizing in recent months. Exports, however, remain weak. Many plants continue to operate below capacity. Output and sales volumes remain significantly below their 2021 levels.

Many companies expect business conditions to remain challenging in the months ahead. Rising costs, weak sales volumes and intense international competition continue to weigh on profitability. Against this backdrop, the VCI expects production to decline by 1.5 percent for the full year. Given the current geopolitical volatility, the association is refraining from issuing any further forecasts.

Germany continues to lose ground

From the VCI’s perspective, the decline in capital expenditure on property, plant and equipment is particularly alarming. Such investment is now around 15 percent below its 2023 level. This trend is part of a broader and equally worrying picture: according to a recent study, Germany’s net productive investment has fallen to just around 0.2 percent of economic output. Across Europe, production capacity is being reduced without sufficient investment in new facilities and future technologies. For companies, high energy and production costs, together with other unfavourable framework conditions in Germany, remain among the most significant barriers to investment.

Reform package marks a first step

Against this backdrop, the VCI believes it is now essential for the German government to build on its individual policy measures with a comprehensive programme of structural reform.

“The reform package agreed by the CDU/CSU–SPD coalition is the first serious attempt in years to break the regulatory constraints holding back Germany as an industrial location. This course must be pursued consistently. Any additional burdens would only further aggravate the situation,” Steilemann stressed.

The need for action remains substantial. This is also reflected in the latest VCI member survey: more than 80 percent of companies believe that policymakers are not giving sufficient consideration to the risks of deindustrialisation. The association is therefore calling above all for internationally competitive corporate taxation, lower labour costs, faster permitting procedures and less bureaucracy.

Despite the continuing crisis, the VCI remains convinced of Germany’s long-term industrial potential. As Steilemann concluded: “Germany has a strong industrial base and a strong capacity for innovation. Now is the time to harness these strengths once again. This also requires a change in mindset—towards greater openness, a stronger willingness to embrace change and a greater sense of personal responsibility. Above all, we must recognise that the cost of inaction will ultimately exceed the cost of pursuing reforms together.”