By Anastasiia Kozlova and Isabel Demetz

July 17 (Reuters) - Germany's chemical industry lobby VCI does not expect a sector upswing before 2026, even though the rapid downtrend the chemical-pharmaceutical industry has seen in recent years seems to be over, it said on Thursday.

The chemical industry including pharmaceuticals recorded sales of 107 billion euros ($124 billion) in the first half of 2025, down 0.5% from a year earlier, affected by lower industry output as companies announce plant closures and job cuts, VCI said.

"The situation remains tense. In the first half-year, our industry produced around 15 percent less than in the pre-crisis year of 2018," Markus Steilemann, VCI president and CEO of Covestro 1COV.DE, said in a press release.

The industry recorded a 1% drop in industrial production, while producer prices remained stable, the chemical association said.

The third-largest industry of Europe's powerhouse Germany can be seen as a bellwether for the broader region's economy as it produces material components used in various sectors ranging from automotive and construction to agriculture and textiles.

Germany's BASF BASFn.DE, Covestro and Brenntag BNRGn.DE recently lowered their annual forecasts, citing persistent global economic weakness, subdued demand and the impact of U.S. tariffs, with no signs of a near-term recovery.

"The business location Germany is overly expensive in an international comparison," Steilemann said, blaming this on excessive bureaucracy, non-competitive energy prices, and high taxes, labour costs and raw material prices.

To overcome these challenges, the German government has introduced a series of fiscal measures to stimulate the sluggish economy, including a 500 billion euro infrastructure fund launched in March and a 46 billion euro tax relief package approved in June to support businesses through 2029.

According to Anna Wolf, industry expert at the Ifo Institute for Economic Research, the new infrastructure fund and electricity tax cuts for industry are the main driving factors for German business expectations.

($1 = 0.8626 euros)

(Reporting by Anastasiia Kozlova and Isabel Demetz; editing by Milla Nissi-Prussak)

((Anastasiia.Kozlova@thomsonreuters.com; Isabel.Demetz@thomsonreuters.com))