Germany: Market Scenario A Difficult Year for the Industry: German Chemical Industry Association

Editor: Ahlam Rais

The German Chemical Industry Association (VCI) has revealed that in the chemical-pharmaceutical industry production fell by 3 % year-on-year and turnover dropped by 6 % in the backdrop of the corona crisis.

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In 2021, VCI predicts production to grow by 1.5 % and turnover by 2.5 %.
In 2021, VCI predicts production to grow by 1.5 % and turnover by 2.5 %.
(Source: Deposit Photos)

Germany – The year 2020 was marked by strong ups and downs in the four quarters for the chemical-pharmaceutical industry. The global corona crisis weighed heavily on many companies: turnover in Germany's third-largest industry fell by a total of 6 per cent to 228 billion dollars (186.4 billion euros). "The burdens for our member companies are considerable," says VCI President Christian Kullmann. "At the same time, our industry as a whole has been hit less hard than other sectors of the economy."

Foreign business in almost all export markets (-6.5 %) suffered from the corona-related lack of orders, as did domestic sales (-5.5 %). As a result of the weaker demand, production fell by 3 per cent overall in 2020. All sectors suffered losses in the process. The range was from only a small drop in production in pharmaceuticals (-0.5 %) to a drop of 6.5 per cent in polymers.

Employment:

Despite the weak chemical economy, the number of employees remained stable at 464,000.

Forecast 2021:

At the end of this year, demand for chemical products has remained largely stable. At the same time, according to the ifo business survey, the current business situation has also improved. "The mood in our companies is now mostly confident," says Kullmann. "More than half expect sales to increase in Germany and abroad next year." For 2021, the VCI therefore expects an increase in both production (+ 1.5 %) and turnover (+ 2.5 %) for the chemical-pharmaceutical industry. For employment, on the other hand, the VCI expects a slight decline of 1 per cent, due to the structural change in the industry, which is accelerated by the corona crisis.

The current VCI member survey also shows that overcoming the crisis will still take some time in many companies: Only 17 per cent of the companies are confident of reaching the pre-crisis level again this year. 25 per cent expect to be able to make up for the decline by the end of 2021. Majority of the companies surveyed – 47 per cent – expect to overcome the crisis by 2022 at the earliest. 11 per cent of the companies did not want to commit to this.

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Mobilising Investment: From Green Deal to Sustainable Deal

In the view of the VCI, emergency aid and economic stimulus programmes by the state against the Corona crisis cannot replace the necessary course-setting in Brussels and Berlin for sustainable investments in Germany and the EU. Instead, the task calls for a long-term transformation programme that has to consider measures on three levels simultaneously: national, European and geopolitical. The EU Green Deal project can thus be upgraded to a Sustainable Deal.

The VCI considers affordable, renewable energy to be a central building block for Germany's economic awakening and a successful transformation of the entire industry towards greenhouse gas neutrality. "Nothing serves climate protection better than a favourable price for green electricity," emphasises VCI President Kullmann. "Both the current surcharge and levy system in Germany and the current EU state aid framework are unsuitable to accompany the transformation." In order to generate lasting momentum for the economy, approval procedures would also have to be made more efficient. The high density of regulation is increasingly causing problems for small and medium-sized enterprises in particular. Kullmann: "If the approval procedure for vaccines against the coronavirus can be accelerated without risk, it should also be possible in other areas to make approval procedures for investments more effective while maintaining a high level of protection for people and the environment."

With regard to the EU's Green Deal, Kullmann calls for a better balance of the ambitious reform agenda. "It is not only about advancing environmental protection, but also focusing on economic growth and social issues in the necessary triad. We need to spur innovation and investment; otherwise Europe cannot survive in the reordering world."

The tightening of the climate target from 40 to 55 per cent, which was agreed at the EU summit, must be accompanied by accompanying measures so that energy-intensive products can continue to be produced competitively in Europe. In this context, the VCI warns against a misguided approach by Brussels by introducing climate tariffs for imports of CO2-intensive raw materials into the EU. Apart from a lack of controllability and trade policy conflicts, there is also a risk of a loss of competitiveness in downstream stages of the value chain. Only more complex compensation models can help the chemical industry in Europe. Above all, climate tariffs cannot serve as a substitute for existing compensation measures for rising climate protection costs for European companies.

The VCI represents the economic policy interests of more than 1,700 German chemical companies and German subsidiaries of foreign corporations vis-à-vis politics, authorities, other sectors of the economy, science and media. In 2019, the industry turned over more than 242 million dollars (198 billion euros) and employed around 464,000 people.

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