Germany's chemical industry association, the VCI, warned on Saturday that recovery had slipped beyond 2026, after production fell three percent year-on-year. The Frankfurt-based group cited high energy costs and weak global demand.

The chemical sector is Germany's third-largest industry by revenue and a key supplier to automotive, construction and pharmaceutical manufacturers. Producers including BASF, Covestro and Evonik have reduced European capacity in recent years, citing electricity and gas prices far above those paid by rivals in the United States and Asia.

A VCI spokesperson said order books remained thin and plant utilisation was running below profitable levels. The association renewed calls for the German government to lower industrial power prices and ease regulatory burdens, warning that further site closures were likely without relief.

The deepening slump adds pressure on Chancellor Friedrich Merz's coalition, which has pledged to restore industrial competitiveness. Economists at the Ifo Institute in Munich have linked weak chemical output to Germany's broader manufacturing stagnation and sluggish gross domestic product.

The VCI expects full-year production to stagnate or contract, revising down earlier hopes of a modest rebound in the second half of 2026.