European Economy

THE LARGEST CHEMICAL INDUSTRY in Europe has jettisoned earlier predictions for this year and next. Now, the German Chemical Industry Association (VCI) is forecasting stagnation for 2008 and a production drop in 2009.

After four years of good growth, German chemical production next year will drop by 1% from 2008 levels, VCI President Ulrich Lehner predicted at the association's end-of-year press conference in Frankfurt. He blamed the drop on "falling demand from industrial customers, and in particular from the automotive and construction industries," and on "the reserved consumption behavior of consumers." Lehner said he sees no end to the troubles until the second half of 2009.

That consumer behavior is expected to continue, economists warn, as Germany slips into recession. In a report last month, the German Council of Economic Experts predicted that the country will experience no growth in gross domestic product next year.

Only the chemical industry's large pharmaceutical sector, Lehner said, is contributing any stabilizing effect because it is largely independent of cyclical trends. But even there, he pointed out, production is expected to be up only 3.5% this year.

German chemical companies, he added, "are doing whatever they can to keep their permanent staff. We very much hope that they can hold out until we have passed the trough and the demand picks up again."

When 2008 comes to a close, sales of the German chemical industry will have risen by 3.0% to roughly $232 billion, largely because of higher prices, VCI economists said at the press conference. Exports will increase by 3.0% to just under $130 billion, and domestic sales will be up by 2.5%.