German Chemical Industry Anticipates Deeper Decline in 2025 Amidst Mounting Challenges

Forecast of Continued Production Decline

The German chemical industry is bracing for a challenging year in 2025, with forecasts pointing to a continued and potentially steeper decline in production. The German Chemical Industry Association (VCI) maintains its projection of a 2% decline in chemical production, excluding pharmaceuticals, for the year, though indicators suggest the actual drop could be more significant. This follows a period of stagnation for the German economy over the past three years, with the chemical sector at the forefront of deindustrialization.

Production has notably decreased in energy-intensive basic chemicals and specialty chemicals. Domestic and export orders remain weak, contributing to low capacity utilization across the industry.

High Energy Costs and Regulatory Pressures

One of the most critical factors impacting the German chemical industry is the burden of high energy costs. European chemical companies face persistently elevated energy prices, particularly for natural gas, which serves as both a fuel and a raw material. In the first quarter of 2025, natural gas prices in Europe were reported to be 3.3 times higher than those in the United States, significantly increasing operational costs and eroding competitiveness.

Beyond energy, the industry is also grappling with substantial regulatory burdens and high taxes. EU regulations, such as REACH, and restrictions on substances like perfluoroalkyl and polyfluoroalkyl substances (PFAS), have prompted some companies to close plants or relocate production. Chancellor Friedrich Merz has publicly called for the European Union to 'reduce unnecessary bureaucracy' and 'simplify' EU REACH regulations to support the industry.

Skilled Worker Shortages and Intensified Chinese Competition

The availability of a skilled workforce presents another significant hurdle. The German chemical industry, which relies heavily on specialized expertise, faces a growing skilled worker shortage. This issue is exacerbated by an aging workforce, with approximately 38% of the German chemical labor force being over the age of fifty, and declining enrollment in crucial disciplines like engineering. Bottlenecks are particularly evident in core chemistry fields.

Furthermore, the industry is experiencing what some describe as a 'China shock 2.0,' characterized by intensified competition from China. China's overcapacity and weak domestic demand have led to an influx of cheap imports and significant pricing pressure in global markets. The competition between Germany and China in chemical products is increasing, with Germany's lead in EU imports of these products shrinking. While some German chemical giants, such as BASF, are investing heavily in new production facilities in China to access its large market, this strategy has raised questions about its impact on domestic production.

Outlook and Calls for Reform

The VCI anticipates no major recovery for the German chemical industry before 2026. The challenges have led to a significant decrease in investments in Germany, with a reported 90% drop since 2018. Industry leaders and policymakers are calling for urgent reforms to address these structural issues. Measures proposed include tackling high energy, raw material, and labor costs, as well as reducing bureaucratic and regulatory burdens.