Anticipation for Progress in Fiscal Policy Decision-Making
The German Chemical Industry Faces a Tumultuous Future
Grapple as it may with an economic slump, the German chemical industry is pinning its hopes on a shift in government following the early federal elections in February. The German Chemicals Industry Association (VCI) insists that boosting Germany's competitive factors is essential, and this can be achieved by streamlining bureaucracy, reducing taxes, and ensuring affordable energy.
In recent remarks at a gathering in Frankfurt, VCI President Markus Steilemann expressed optimism, stating that the conditions for a political overhaul were favorable. He underscored our country's urgent need to form a stable government, one capable of instigating reforms that lift the economy. Germany, he maintained, can't condone a "collective lethargy," and while companies are eager to take matters into their own hands, the industry anticipates better conditions from the government.
An Overbearing Bureaucracy Holds Germany Back
The VCI identifies excessive bureaucracy and torturously slow approval processes as Germany's most significant obstacles as a business hub. Steilemann did acknowledge that energy prices have returned to early 2021 levels, but affordability remains a concern. The primary focus, however, pertains to maintaining supply security and navigating the delicate balance between green transformation and economic prosperity. Steilemann hopes that the upcoming government will adopt a "pragmatic approach" to achieving a cost-efficient grid expansion.
The VCI champions corporate tax reform, advocating for a substantial reduction in the tax burden. Steilemann advocates for the elimination of the solidarity surcharge and tax incentives for investment. The state, he maintains, should direct spending, with a focus on avoiding cuts in infrastructure, security, and education. To enhance governmental transparency, the VCI suggests binding fiscal rules and a national balance sheet.
Profits Are Scarce in Domestic Markets
Given the looming specter of protectionism and planned tariffs by the next US President Donald Trump, the VCI has yet to assess the impacts on the chemical industry. While the global industry can benefit if regional markets are strengthened, domestic profits remain elusive, as companies plough more investments abroad rather than in Germany and Europe. VCI member companies are investing less in their home markets and setting up new plants abroad, particularly in the US and Mexico, China, and Southeast Asia. "Drill where demand and growth are," Steilemann asserts.
Sentiment in the industry is mixed, the VCI reports, with about 25% of companies expecting increased earnings in 2025, another 26% expecting stable earnings, and 46% anticipating a decline.
Industrial Insights
The German chemical industry grapples with various interconnected challenges, chief among them increased competition from China and the US, rising production costs, and regulatory hurdles. The VCI advocates for sector-specific protections and closer trade diplomacy with the US, avoiding escalation and embracing mutually fair solutions[1]. The industry also calls for targeted, industry-friendly adjustments to EU policies, such as REACH revisions, instead of comprehensive legal overhauls[5]. Ensuring cost competitiveness is crucial, underscoring the need to address energy costs and streamline bureaucracy to bolster the EU's waning global market share[1][3][5].
- The German chemical industry is facing a tumultuous future, primarily due to increased competition from China and the US, rising production costs, and burdensome bureaucracy.
- To bolster its global market share, the industry advocates for sector-specific protections and closer trade diplomacy with the US, aiming to avoid escalation and embrace mutually fair solutions.
- boosting Germany's competitive factors is essential, and this can be achieved by streamlining bureaucracy, reducing taxes, ensuring affordable energy, and adopting a pragmatic approach to cost-efficient grid expansion.
- In the forecast for 2025, sentiment in the German chemical industry is mixed, with about 25% of companies expecting increased earnings, another 26% expecting stable earnings, and 46% anticipating a decline.
