German chemical industry stuck in prolonged crisis

The German chemical industry, long a pillar of the country’s economy, remains under mounting pressure. New figures from the German Chemical Industry Association raise fresh doubts about its long-term competitiveness.

The chemical industry in Germany faces increasingly difficult conditions. Photo: Patrick Pleul/picture alliance via Getty Images

Frankfurt. At the end of 2025, Germany’s chemical industry remained mired in a structural crisis, according to a press release issued by the German Chemical Industry Association (Verband der Chemischen Industrie, VCI). In the fourth quarter of 2025, the association again reported declines in production, prices and revenues across the sector. On average over the year, capacity utilisation at chemical plants stood at only 72.5 per cent, well below a profitable level. In the final quarter, chemical production fell by 2.9 per cent compared with the previous year.

Output across the wider chemical and pharmaceutical complex increased only because the pharmaceutical sector recorded strong growth. At the same time, producer prices in the industry were 0.6 per cent lower over 12 months. Quarterly revenues fell to €51.8 billion, 2.8 per cent below the level recorded a year earlier.

Energy remains too expensive

As long as energy prices in Germany remain high, conditions for the chemical industry will continue to deteriorate. The sector is among the most energy-intensive branches of the economy. Because of the war, risks in energy and raw materials and persistent structural disadvantages at the location, the VCI says it is currently unable to produce a reliable forecast for 2026.

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In its quarterly report the association pointed in particular to basic chemicals, where polymer production dropped sharply in the fourth quarter. According to data from the Federal Statistical Office (Destatis) cited by the VCI, the industry is no longer merely experiencing a cyclical downturn but is losing price competitiveness in a noticeable and lasting way.

The pharmaceutical industry currently acts as the stabilising force within the broader chemical and pharmaceutical sector. According to the VCI, pharmaceutical output rose by 6.6 per cent in the fourth quarter of 2025 compared with the previous quarter and stood 10.7 per cent above the level of the previous year. Over the whole of 2025, production increased by 4.5 per cent and revenues by 5.5 per cent. Gross value added by pharmaceutical manufacturers has also risen since 2024.

Nevertheless, at the beginning of 2026 the German Pharmaceutical Industry Association (Bundesverband der Pharmazeutischen Industrie, BPI) spoke of ‘clear warning signs’ pointing to declining production and revenues as well as increasingly difficult conditions for the sector as a business location. In short, while pharmaceuticals are currently performing better than the chemical industry, location risks are increasing in both sectors.

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Drug production under pressure

The problem is particularly visible in the supply of medicines in Germany. Pharmaceutical production also depends on chemical precursors, energy, solvents, packaging and sterile filling capacities, while global logistics chains play an even more decisive role.

The Federal Institute for Drugs and Medical Devices (Bundesinstitut für Arzneimittel und Medizinprodukte, BfArM) notes that supply shortages are typically caused by production problems, quality defects, missing batch approvals or unexpectedly high demand. The public PharmNet database currently lists several hundred reported supply shortages. Germany was once known as the pharmacy of Europe.

Today the production of many medicines has been relocated to China. The crisis in the Middle East – and the fact that a large share of global air freight passes through hubs in the region – does little to improve the situation for either manufacturers or importers. The association of generic drug manufacturers, Pro Generika, notes in its analysis of supply shortages that roughly two-thirds of the active pharmaceutical ingredients required for medicines used in Germany originate in China or India.

Pharma cannot save the chemical industry

The pharmaceutical industry may be more resilient, but remains vulnerable to supply disruptions from China and India. Photo: Alto/Sigrid Olsson/Getty Images

In economic terms the pharmaceutical industry may be more robust than the chemical sector. In terms of supply security, however, it is considerably more vulnerable. Even a strong production index offers little protection if critical active ingredients, sterile filling capacities or a small number of specialised manufacturers fail – or are unable to deliver because of war.

Generic medicines are particularly sensitive, as they account for the bulk of supply while operating under extreme price pressure. According to Pro Generika, generics cover around 80 per cent of the German market but represent only just under seven per cent of the pharmaceutical expenditure of the statutory health insurance system.

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According to the association, the discrepancy makes it difficult to invest in redundant capacities and stockpiles. Shortages repeatedly arise in areas such as children’s antibiotics, cold remedies, haemostatic products and sometimes even statins used to lower cholesterol.

The combination of weak demand in the chemical industry, global dependence on raw materials and intermediate products, price pressure in the generics market and highly concentrated specialised manufacturing leaves Germany both a strong pharmaceutical production centre and a vulnerable location for the supply of medicines.