FRANKFURT: Germany’s powerful chemicals sector will see a bigger decline in sales over 2016 than previously thought as weak global growth and trade undermine prices, the VCI industry federation said on Friday.

“Negative factors, such as weak growth in the emerging economies, little momentum in overall global trade, and the end of the worldwide investment boom” are weighing on Germany’s third-largest industrial sector, president Marijn Dekkers said.

While production stagnated in the six months to June, sales in the sector fell to 90.4 billion euros ($100bn) — or a drop of 3.5 per cent from the same period in 2015 —, the VCI said in its half-year report.

The positive effects for the sector of low oil prices and the weak euro were waning.

In addition, economic uncertainty sparked by Britain’s June vote to leave the EU, and increased volatility in both raw materials prices and exchange rates “create difficult conditions for solid growth in the sector,” said Dekkers.

That prompted the federation to downgrade its sales forecast for the whole of 2016 by half a percentage point to 1.5pc.

Beyond economic headwinds, German chemicals producers — ranging from SMEs to global giants like Bayer and BASF — have seen increased competition from abroad slash export figures for products further down the value chain, including petrochemicals and polymers.

Dekkers said the German government was not doing enough to stop German companies’ investment in production capacity going abroad.

“The chemical industry definitely needs a better environment for investment. That means reliable political requirements and competitive costs,” he said.

German industry has long complained of high energy costs, driven upwards in recent years by the country’s aggressive drive to cut carbon emissions by subsidising renewables.

This decade has also seen much larger wage increases for workers compared with the slow growth of the early 2000s that boosted big exporters’ competitiveness.

By comparison, China, the United States and Saudi Arabia have become more attractive locations for big investments by German firms.

Since 2011, German chemical makers have been investing more in new production capacity abroad than at home — with the gap widening to 1.5bn euros in 2015.

Published in Dawn, July 23rd, 2016