Despite a weaker than expected 2015 and an especially disappointing end to the year, the outlook for German chemical producers in 2016 is mostly positive, the industry association Verband der Chemischen Industrie (VCI) said at a press briefing in Frankfurt.

The association’s latest forecast calls for 1% higher output of chemicals, with prices falling by 0.5% as sinking raw materials costs will have to be passed on to customers. Industry-wide sales are expected to also rise by around 0.5% to about €191 billion, with domestic business stagnating and foreign sales growing “slightly.”

In last year’s fourth quarter, all business indicators – except employment – pointed downward, VCI’s figures show. Production sank by 2.6% against the previous quarter; compared with the 2015 period, the decline was 0.8%.

Sales of chemical and pharmaceutical products fell by 1.5% in Q4 against Q3 to €43 billion, with domestic sales down 0.9% and foreign turnover down 1.6%. This is attributed mainly to softness in emerging markets. Producer selling prices continued to erode and were down 1.6% against the last three-month period. Capacity utilization rates, at 83.8% were just below the annual average.

For the full year, VCI said industry-wide sales sank by 0.4% to €191 billion and prices fell 2.8%. While foreign turnover lost only 0.3%, domestic business crumbled by 1.5%. Capacity use was at 83.5%.

Production of chemicals and pharmaceuticals combined rose 0.7% against 2014. At closer glance, pharma showed the most stability, with output up 3.7%. Specialty chemicals output increased by 1.3%, as inorganics gained 0.7% and polymers 0.3%. Consumer chemicals and petrochemicals lost 3.4% and 3.1% respectively in volume.

The weakening of emerging markets, which manifested itself squarely in the second half, was a principal factor behind the slacker business last year, VCI general manager Utz Tillmann told journalists. Especially worrying to chemical producers, he said, was Russia and Brazil’s descent into recession and the slowing growth in China.

In particular, Tillmann said, the structural problems that became increasingly apparent in the formerly dynamic People’s Republic last year took German chemical producers by surprise, forcing them to curb output. In petrochemicals, the curbs were most dramatic.

Germany’s dependence on China – the second most important foreign market for the chemical industry behind the US – is greater than it may seem from figures showing that 3.6% of exports go to China, the VCI manager said. In the association’s calculation, exports have grown by more than 14% annually since 2004. The industry’s companies have established 179 subsidiaries in China, which have sales of over €16 billion annually.

Once again, Germany is shaping up to be hit by the boomerang of its own success, Tillmann suggested. With Chinese production facilities humming, including those built by VCI’s own member companies, he said member companies are concerned that China will import less from the Middle East, and producers in the latter region thus will seek outlets in Europe.

VCI sees the future threatened not only by China or the Middle East. Tillmann said “homemade problems” also cloud the outlook. Especially worrying is that the importance of industry for the German economy is lagging, following a trend seen earlier in other European countries.

Against this backdrop, he said, Germany risks drifting into a recession or, if developments are especially drastic, even a deindustrialization. From statements in VCI’s quarterly report, however, as long as European markets continue their recovery from a long recession, the threat does not appear to be imminent.

In contrast to Germany, the association sees light on the horizon in its second home market, Europe, where production is forecast to grow by 1% this year. Sales to the US, where sinking oil prices are dampening the shale gas boom, and Japan, where the motor of growth is sputtering again, are not expected to make an especially substantial contribution. Russia and Brazil are seen as sinking further into the mire.