The German chemical and pharmaceutical industry is no stranger to bad news. High energy costs, weak demand, competition from China, bureaucracy from Brussels. Much of this has been with the industry for years. But now something new has been added: nervousness.

Fear buys with

Wolfgang Große Entrup, Managing Director of the German Chemical Industry Association (VCI) © VCI

"We are not seeing a spirit of optimism, but geopolitical hoarding," says Wolfgang Große Entrup, Managing Director of the German Chemical Industry Association (VCI). A sentence that sticks because it describes the state of an entire industry: Companies are buying because they are afraid they will soon have nothing left.

The Strait of Hormuz is blocked, tankers are grounded, supply chains are under pressure. Crude oil is becoming more expensive, as is naphtha. Kerosene may be in short supply. The International Energy Agency is already warning of an energy crisis of historic proportions. And in the midst of this situation, Germany's third-largest industry is trying to find out whether it is still in an economic slump - or already in something bigger.

The VCI's response is gloomy: No upturn in sight

Seasonally adjusted, production in the chemical and pharmaceutical industry fell by 2.8% in the first quarter of 2026 compared to the previous quarter. Compared to the previous year, it was even almost six percent lower.

The decline in pharmaceuticals was particularly marked. Production slumped by 10.1%. However, there are also technical reasons for this: in 2025, many companies had brought forward their production due to announced US tariffs. Now comes the countermovement.

The traditional chemical industry was able to increase its production slightly. Two percent more than in the previous quarter. But even that sounds better than it is. Compared to the previous year, chemical production is down by more than four percent.

"Chemistry is an indicator that the economy is picking up," says Große Entrup. "And we can see that it's not showing anything at the moment."

The problem: chemistry is at the beginning of almost every industrial value chain. If there is no momentum there, there is little momentum elsewhere. The sector produces the primary products for cars, medicines, building materials, packaging and cosmetics. If chemical companies are not experiencing rising demand, this is rarely a good sign.

"Just a brief respite"

And yet there are suddenly more orders again.

That sounds paradoxical at first. After all, the situation in the industry remains difficult. At 75.1%, capacity utilization is still well below a profitable level. Incoming orders are still more than 20% below the 2021 level and the number of employees is falling. Around 471,500 people still work in the industry, around one percent fewer than a year ago.

So why are sales rising slightly again? Because customers are replenishing their stocks. Because they don't expect the geopolitical situation to improve any time soon.

Seasonally adjusted, total turnover in the sector rose by 2.1% to 50.9 billion euros in the first quarter. Compared to the previous year, however, this also represents a drop of 5.4%.

The additional orders have little to do with confidence. They are more of an insurance policy against further escalation in the Middle East. Many companies would rather buy now than possibly not buy at all later.

For some chemical companies, this is even an advantage in the short term. Competitive pressure from Asia has recently eased somewhat. Supply chain problems, higher energy prices and production cutbacks are also slowing down Asian suppliers.

"The brutal competitive pressure from Asia is easing somewhat at the moment and is being slowed down by the Iran conflict," says Große Entrup. "That gives us a brief respite. But nothing more than that."

The return of costs

The industry's real concern lies deeper. It concerns the costs.

Crude oil averaged more than USD 80 per barrel in the first quarter and recently even exceeded USD 100 again - a level similar to the 2022 energy crisis. Naphtha, the chemical industry's most important raw material, increased in price by almost 18% quarter-on-quarter. Gas and electricity prices are also rising again.

For an industry that consumes enormous amounts of energy, this is more than just a burden. It changes competitiveness.

Increased costs are passed on to customers

82 percent of companies are now passing on their increased costs to customers, reports the VCI. Inflation is therefore likely to rise again.

Small and medium-sized companies are particularly affected. Almost 80 percent of member companies are already reporting negative consequences of the Middle East conflict for their business.

And the industry does not believe that this is the peak.

"We firmly believe that the hardest part still lies ahead of us," says Große Entrup.

Frustration with Germany

The association has long since moved beyond economic diagnoses. Criticism is also increasingly directed at the location conditions themselves.

"Germany will continue to lose competitiveness if Berlin and Brussels do not take countermeasures," says Große Entrup.

The industry is particularly concerned about the lack of reform speed. While other countries are making investments easier and reducing bureaucracy, Germany is losing time.

"What's actually going on with you?"

"Other countries are getting on with it. Word of our ability to reform has spread around the world," says Große Entrup. "The question is now often: What's actually going on with you?"

The criticism of German economic policy is particularly harsh. The announced reforms are not sufficient, the special funds are being misappropriated and real relief is coming too slowly.

"The pace of reform is turning into a warning light," says Große Entrup. "We are still waiting for real reforms."

Nevertheless, the association sees the actions of individual federal states as a signal. "Baden-Württemberg and North Rhine-Westphalia are questioning reporting obligations. That's the right way of thinking. Reducing bureaucracy then has an immediate effect."

The sentence sounds almost relieved. Because the feeling has become entrenched in the industry that geopolitical crises are almost impossible to control. Political conditions, on the other hand, can.

The industry in crisis mode

The VCI no longer dares to make a reliable forecast for the year. The risks in the Middle East are too great, and the consequences for energy supply, transport routes and the global economy are too unclear.

If the Strait of Hormuz remains blocked for longer, high prices could turn into real supply problems. Even with a quick political solution, normalization would take months, possibly years.

And so, in the end, one impression remains above all: the industry is not working towards growth. It is working towards stabilization.

The chemical industry continues to produce. It is investing, saving, restructuring and hoping for political relief. But it does not believe in a quick recovery.

Or, as Wolfgang Große Entrup puts it: "The plain truth is that the chemical industry is still under constant stress."