“We are merely experiencing a respite, not a turnaround,” said VCI President Markus Steilemann during the presentation of the midyear report. Although the first half of the year performed better than the second half of the previous year, this is not enough to signal a sustained recovery.

Special geopolitical factors are supporting domestic business

The VCI attributes this slight stabilization primarily to one-time geopolitical factors. As a result of the armed conflicts in the Middle East, companies reportedly increased their inventory levels to prevent potential supply disruptions. At the same time, the temporary closure of the Strait of Hormuz has temporarily eased competitive pressure from Asian suppliers.

Domestic business benefited most of all. Domestic sales rose by 2.0 percent to 40 billion euros in the first half of the year. Export business, on the other hand, continued to perform weakly. Foreign sales fell by 2.5 percent to 66 billion euros. According to the VCI, many production facilities continue to operate below capacity. Production and sales remain well below 2021 levels.

The chemical industry has been hit harder than the pharmaceutical industry

Economic performance varied within the sector. Production fell by 3.0 percent in the chemical industry and by 1.5 percent in the pharmaceutical industry. The decline in revenue was also smaller in the pharmaceutical industry (0.5 percent) than in the chemical industry. At the same time, the VCI points out that business conditions are now deteriorating for pharmaceutical companies as well.

The decline in production was particularly pronounced for petrochemicals and their derivatives, at minus 5.5 percent. Polymers were down 4.0 percent from the previous year. Declines were also recorded for laundry and personal care products as well as cosmetics (-3.5 percent), fine and specialty chemicals (-1.5 percent), and pharmaceuticals (-1.5 percent). The production of inorganic basic chemicals remained relatively stable (-0.5 percent).

The number of employees decreased by 1.0 percent in the first half of the year to approximately 471,500.

Earnings remain under pressure

The weak production figures are also reflected in companies’ expectations. According to a VCI member survey, 47 percent of companies expect their revenues to decline in 2026. Another 22 percent expect no change. Only 31 percent anticipate an improvement in their economic situation.

Rising costs, low sales volumes, and intense international competition are likely to keep pressure on margins high in the coming months as well. For the year as a whole, the association continues to expect a 1.5 percent decline in production. The VCI is refraining from making further forecasts in light of the ongoing geopolitical volatility.

Investments are becoming the real problem for the location

The association is more concerned about investment trends than about the current economic situation. According to the VCI, investment in property, plant, and equipment is now about 15 percent below the 2023 level. This marks the third consecutive year of decline.

International comparisons also paint a sobering picture. According to a McKinsey analysis cited by the VCI, net productive investment in Germany amounts to only about 0.2 percent of economic output. This places Germany at the bottom of the list of industrial locations considered in an international comparison. At the same time, production capacity is also being reduced in Europe without sufficient investment in new facilities or future technologies.

Companies’ investment plans reflect this trend. Forty-five percent of the companies surveyed plan to reduce their investments in Germany. Abroad, however, expansion plans predominate. Foreign locations are also becoming more attractive for research and development.