Struggling morale in the chemical sector - downturn in demand and supply conditions persist - Chaotic supply chain conditions prevail within the chemical sector
The economic outlook for Germany's chemical industry has taken a downturn due to ongoing trade tensions between the EU and the US, according to experts at the Ifo Institute. Anna Wolf, an Ifo expert, recently stated that the industry's hope for an economic recovery has vanished.
Sentiment in the chemical industry has reached its lowest point in nearly two years, dropping by 9.7 points to -19.2 in July. This negative sentiment is reflected in various aspects of the industry, with companies reporting stagnant production and a slight sales decline in the first half of the year. The overall weak economy is weighing on demand for chemical products, according to the Ifo Institute.
The trade deal between the EU and the US, completed after the survey on which the current index is based, has yet to provide the expected boost to the industry. The impact of the trade deal on future business assessments is difficult to predict, according to Anna Wolf. However, the new tariffs on chemicals and pharmaceuticals are negatively affecting US businesses, as indicated by the decreased employment expectations.
Companies are planning further job cuts during the survey period, and order backlogs in the chemical industry are being assessed as poorly as they were during the 2009 financial crisis. The industry association VCI had a skeptical view on the trade deal at the end of July.
Despite these challenges, major firms like BASF have partially shielded themselves from the impact of tariffs due to their diversified local supply chains. However, the company reported a 5.8% year-over-year decline in chemical sales in H1 2025, citing challenging market conditions linked to weak demand and excess supply.
Industry leaders suggest political and regulatory shifts emphasizing competitiveness and reduced bureaucracy could help improve conditions, but these changes are still in early stages. Companies are rethinking growth strategies amid ongoing uncertainty, focusing on capital efficiency and portfolio realignment to manage risks from trade conflicts and economic slowdown.
The overall European chemical sector is in structural decline due to high energy costs, weak investment, and increased global competition. Trade disputes exacerbate this scenario by complicating trade flows and adding tariff-related costs.
In summary, trade tensions between the EU and the US have reinforced already cautious and negative economic sentiment in Germany's chemical industry by hurting demand, complicating supply chains, and adding tariff pressures. The industry is facing stagnant or declining sales, weak demand, and ongoing uncertainties, with no expected turnaround within the year.
- To stabilize the economic outlook in Germany's chemical industry, it might be beneficial to consider community policies that provide vocational training programs, thus fostering local talent and potentially alleviating the current industry-wide concern regarding employment expectations.
- In an effort to offset the financial impacts of trade tensions and tariffs, more exploration could be conducted into the potential funding sources for vocational training programs within the chemical industry, ensuring a skilled workforce remains competitive in the global market.
