Business situation of the German chemical-pharmaceutical industry 2018
Good interim results – but outlook with worries
In the first half 2018, sales rise by 5.5% and production grows by 5% ++ Forecast for the overall year 2018: production increase by 3.5% is achievable ++ More and more economic and political risk factors ++ Federal budget and experience speak for fiscal incentives for R&D.
Business of the German chemical-pharmaceutical industry developed positively in the first half 2018, but the outlook for the remainder of the year is less optimistic. In its half-yearly stocktaking, the German chemical industry association Verband der Chemischen Industrie (VCI) reports for the period from January to June 2018 a sales increase by 5.5 percent against the previous year to well over 100 billion euros. Production in Germany’s third largest industry grew by altogether 5 percent. Not all sectors benefited equally from the good business situation, so the VCI: While the production of specialty chemicals climbed by 4.5 percent and pharmaceuticals achieved an output growth of over 11 percent, the production volumes for petrochemials and polymers increased by 1.5 percent. The number of employed went up slightly to 455,200 staff (+0.5 percent).
Meanwhile, the business expectations of the industry are somewhat less favourable. According to the VCI, companies are no longer as optimistic about the future as they were at the beginning of 2018. There are more and more economic and political risk factors. The danger of a global trade war between the USA, China and the EU, the consequences of a hard Brexit and the stormy oil price development are thought to give little reason to hope for a continued upswing. VCI President Kurt Bock on the situation of the industry: “Growth has slowed down while the risks to the economy have increased. Headwinds are getting stronger.”
Forecast: Anticipating a weaker second half of the present year, the VCI forecasts for 2018 as a whole a production increase by 3.5 percent. Prices should rise by 1 percent, so that the industry’s total sales are likely to improve by 4.5 percent to over 204 billion euros.
Introducing fiscal incentives for research:
a major political step for more innovation
From the VCI’s viewpoint, the more cautious expectations of companies for the second half 2018 are also due to the lack of positive industrial policy impulses from the federal government that could counteract the growing risks to the economy. There is a need for action especially regarding innovation. In a world of global competition, Germany needs a faster innovation speed to safeguard prosperity and employment through qualified jobs, so Bock. The VCI President criticises: “Just as with migration and integration or demographic change, the ability to innovate is about the future of our country. But this seems to be increasingly moving in the background among the political priorities in Berlin.”
By way of example, Bock mentions the introduction of fiscal incentives for research and development (R&D) in Germany which the VCI and many other industry associations and scientific organisations have been demanding in vain for years. Today, almost all industrial nations worldwide – including large economies like the USA, Japan and Canada – as well as 24 out of 28 EU Member States grant such incentives for companies, in order to boost their innovative strength.
This criterion is significant in the choice of locations for investment in research-intensive projects, as is demonstrated by Austria. In the Alpine Republic, the R&D spending has a 3.14 percent share in the gross domestic product (GDP). Meanwhile, Austria holds one of the top places in the EU where research intensity is concerned – outranking Germany (2.93 percent). With the successful effect of this instrument on jobs and location choices, Austria raised in early 2018 its tax credit by another 2 percent to now 14 percent of the research spending.
VCI President Bock calls upon the German federal government to submit in autumn a concrete bill for fiscal R&D incentives. He emphasises: “The credibility of political action is at stake – not only in our industry.” With a strong increase in tax revenue in the present legislative period, the financial scope in the federal budget is larger than ever before.
Fiscal incentives are an important instrument to reach for the R&D spending a 3.5 percent share in GDP by 2025 in Germany, as is laid down in the government coalition agreement. This target means a real effort for economy which raises two thirds of all funding. The chemical-pharmaceutical industry supports the 3.5 percent target. Currently, the industry invests just under 11 billion euros annually in research.
All information around VCI's press conference - a table with key figures, 7 charts in diverse formats, the full statement of VCI president Kurt Bock as well as a set of photos in high resolution - stands ready for you in the download section at the top of this page.
- VCI's most important arguments and positions, accompanied by facts and figures, on the topic „Introduction of Fiscal Incentives for Research"
The VCI represents the politico-economic interests of around 1,700 German chemical companies and German subsidiaries of foreign businesses. For this purpose, the VCI is in contact with politicians, public authorities, other industries, science and media.The VCI stands for over 90 percent of the chemical industry in Germany. In 2017 the German chemical industry realised sales of more than 195 billion euros and employed around 453,000 staff.