German Chemical Industry Faces Headwinds from Iran War and Economic Slowdown
Germany’s chemical and pharmaceutical industry is grappling with a challenging environment marked by geopolitical risks, weak demand, and persistent cost pressures. The ongoing conflict in Iran, coupled with broader economic uncertainties, is casting a shadow over the sector’s prospects, hindering a full recovery despite some resilience in the pharmaceutical segment.
Output and Sales Decline
In the fourth quarter of 2025, overall production in the German chemical and pharmaceutical industry saw a slight increase of 0.9% year-on-year, largely driven by growth in pharmaceuticals. However, chemical output itself declined by 2.9% compared to the same period in 2024, remaining at a “incredibly low level,” according to the German chemicals association (VCI). VCI. Capacity utilization in chemical plants averaged 72.5% throughout 2025.
For the entire year 2025, industry production decreased by 0.5%. This decline was attributed to a 3.3% year-on-year decrease in chemical production, partially offset by a 4.5% growth in pharmaceuticals. Total sales for the fourth quarter reached €51.8 billion, a 2.8% decrease year-on-year. Domestic sales fell by 2.3% to €18.9 billion, while exports experienced a slight recovery but remained 2.7% below the previous year’s level.
Full-year sales for 2025 amounted to €220 billion, representing a 1.4% decline. Chemical sales decreased by 3.8%, while pharmaceutical sales increased by 5.5%. VCI.
Impact of the Iran Conflict and Economic Factors
The VCI has warned that the outlook for the industry remains clouded by the conflict in Iran, which is disrupting supply chains, particularly through the Strait of Hormuz. VCI. Weak industrial demand, high import pressure, and intense price competition are likewise contributing to the sector’s difficulties. Rising energy costs in Germany and massive overcapacity in global markets further exacerbate these challenges.
BASF and Job Cuts
BASF, the world’s largest chemical company, is implementing cost-cutting measures, including job cuts in Germany and a shift of operations to Asia. Yahoo Finance. Protests have erupted over these plans, with workers expressing concerns about job security and the future of the industry. The company is reducing back-office jobs, including at its Berlin office, which serves as the European hub for its global business services division. Yahoo Finance.
BASF’s turnaround is considered a work in progress. The Economist. The company is facing “huge pressures” alongside other traditional German industries.
Looking Ahead
Despite some positive contributions from the pharmaceutical sector and isolated large orders, the VCI indicates that a significant turnaround is not currently in sight for the German chemical industry. The combination of geopolitical instability, economic headwinds, and internal pressures suggests a continued challenging period for the sector. Indian Chemical News.