The chemical and pharmaceutical industry is coming to the end of a challenging year, according to a press release from the VCI. Despite initial hopes of an economic recovery, this expectation remained unfulfilled. The outlook for the coming year 2024 also shows no sign of improvement for the time being.
"We are in the middle of a deep, long valley. And it is still unclear how long we will have to go through it," says Markus Steilemann, President of the German Chemical Industry Association, commenting on the situation. A rapid upturn is not in sight.
Recession also affects other industries
Germany is in a crisis that is not only affecting the chemical industry. The entire German economy is suffering from the weak economy and structural problems. In order to get Germany back on the road to success, the association believes that a far-reaching change in policy and a focus on a competitive economy are urgently needed. After all, this will secure the basis for a sustainable future.
"The endless discussion and the result of the budget agreement dramatically underline the fact that politicians must finally wake up so that Germany's prosperity model does not suffer a shipwreck," emphasises Steilemann.
Declining production, capacity utilisation and turnover
2023 was a bad year for the industry. Overall, chemical and pharmaceutical production fell by 8%. If the pharmaceutical business is excluded, the decline is 11%. Companies increasingly lacked orders. The industry's capacities were underutilised by an average of around 77%. This means that production has been below the economically necessary basic capacity utilisation of 82% for nine quarters.
Manufacturers of inorganic raw materials as well as soaps, detergents and cosmetics reduced their production by 10%. In fine and speciality chemicals, production fell by 4%. The pharmaceuticals division also had to contend with poor site conditions following the vaccine boom and lost 3%. At around 230 billion euros, industry sales were 12% lower than in the previous year.
The decline in domestic business was particularly sharp. Sales fell by 16% to 86 billion euros. At 144 billion euros, foreign sales were 10% lower than in the previous year. Falling chemical prices also contributed to the decline in sales. Producer prices for chemical-pharmaceutical products were on average around 1% cheaper in 2023 than in the previous year.
No improvement expected for 2024
At the end of the year, the mood in the industry remained recessionary. Both the current business situation and expectations for the coming months are negative. Orders in the chemical business are therefore likely to continue to be lacking. The VCI therefore does not expect chemical production to increase again in the coming year. Industry turnover is expected to fall by 3%.
This forecast is also confirmed by the results of the current member survey: companies do not expect an upturn in the short term. 45% expect an improvement in 2025 at the earliest.
Results of the VCI member survey
Declining sales, falling sales prices and high production costs are putting companies' profits under considerable pressure. According to the latest VCI member survey, almost 40% are complaining of a significant drop in profits. Around 15% of companies are already in the red. At the same time, the persistently difficult business situation is forcing companies to make painful adjustments. "The longer this situation continues, the more we have to expect that further plants will be shut down," warns Steilemann. The exit from loss-making business areas, relocation of investments abroad or staff cutbacks can no longer be ruled out.
Energy prices are still a major problem for the VCI
For a competitive economy and a green transformation, industry also needs competitive energy prices. In the short term, this means lower energy prices. In the long term, it means speeding up the restructuring of the energy system - expanding the supply of electricity, expanding grids and creating reserve capacities with back-up power plants and energy storage systems. However, the electricity price package, which is still planned following the agreement in the budget dispute, merely maintains the status quo.
However, the energy issue is just one of many unresolved problems. The list of shortcomings continues to include ailing infrastructure, a shortage of skilled labour and excessive bureaucracy and regulation.
"We need to rethink Germany. We need a 2030 offensive," demands Steilemann. After all, a competitive economy is the basis for a sustainable future. This is the only way to achieve the key political goals: Prosperity, green transformation, a welfare state and sound public finances.
According to the VCI member survey, companies are fighting the crisis with all their might. 70% have announced that they will focus even more strongly on efficiency measures. Every second company plans to intensify its innovation efforts. 30% of companies want to accelerate the ecological reorganisation.
"We are a location with immense potential," explains VCI President Steilemann. "We are reaching out to politicians to now tackle the urgently needed structural reforms with full vigour."
The federal government must
- free the economy from bureaucracy and prevent further burdens through a moratorium;
- massively speed up authorisations and transform Germany into a digital country. With a modern administration, other nations save 2 per cent of their gross domestic product;
- prioritise government spending. Cost-benefit considerations and not political ideology must be the decisive factor here.
Further information can be found at www.vci.de.
