July 16 (Reuters) - Germany's chemical industry expects production, including pharmaceuticals, to fall 1.5% in 2026, its main lobby group VCI said on Thursday, warning that weak European demand and a broader shift in growth and investment towards Asia are undermining hopes of a sustained recovery.
The association forecast another year of declining output as weak sales volumes, rising costs and subdued investment continue to weigh on the sector, a key pillar of Germany's manufacturing economy.
Production in Germany's chemical and pharmaceutical industry fell 3% in the first half of 2026, while sales declined 1% to 106 billion euros ($123.4 billion), VCI said. Producer prices rose 2%.
"The half-year results are disappointing," VCI President Markus Steilemann said in a statement.
Adding to the industry's challenges, European demand for chemical products is at best stagnant and in some cases declining, Steilemann said in a press conference.
For years, European chemical producers benefited from exports to fast-growing Asian markets. But as customers expanded in China and elsewhere in Asia, companies increasingly shifted production closer to those markets, reducing exports from Europe. As a result, rising local production in Asia has increasingly displaced imports from German and other European producers, Steilemann said.
The group had declined to publish industry forecasts in March and May because of uncertainty surrounding the conflict in the Middle East, but said any recent improvement in conditions was unlikely to mark the start of a broader turnaround.
VCI said disruptions linked to the conflict had temporarily benefited some European chemical producers by hurting more feedstock-dependent Asian competitors. However, it said the effect was insufficient to offset broader weakness in demand and investment.
The outlook contrasts with growing optimism at some individual companies. Evonik Industries and Brenntag have both recently raised their full-year profit forecasts.
Germany's chemical and pharmaceutical industry is the country's third-largest industrial sector and is widely seen as a bellwether for manufacturing demand, supplying materials to industries ranging from autos and construction to agriculture and textiles.
Reporting by Anastasiia Kozlova and Patricia Weiss; editing by Bartosz Dabrowski and Matt Scuffham
Source: Reuters