The association, which represents around 1,900 companies in Germany's third-largest industrial sector, expects production volumes including pharmaceuticals to grow by only 2% this year, compared to the 3.5% growth forecast it had maintained for almost six months.

It expects industrial sales to drop by 2%, versus previously projected rise of 1.5%.

The downbeat outlook reflects a difficult backdrop where the German economy continues to stagnate, the federal political landscape is largely occupied with itself, and the mood in the companies could hardly be worse, VCI said.

"Let us be clear about this - the crisis is largely home-grown," VCI's director-general Wolfgang Grosse Entrup said in the press release.

Europe's largest economy was thrown into disarray with the collapse of Olaf Scholz's coaliton and disagreements over economic and industrial policy between the FDP, Greens and Scholz's Social Democrats.

The package of energy price subsidies, which the German government agreed to implement last year to support its struggling industry, had been one of the major sticking points for the coalition.

"We hope that an agreement can still in the legislative period be reached so that industry will only have to pay the European minimum rate of electricity tax in future," Sebastian Bolay, the head of energy, environment and industry at the German Chamber of Commerce and Industry, said about the electricity price package.

"Low electricity prices are an important leverage for companies to decarbonize their processes," he added in the emailed statement.

VCI said the chemicals sector, including pharmaceuticals, recorded a 0.1% rise in industrial production and a 1.8% decline in sales in the third quarter, while producer prices fell 0.3%.

The industry had suffered from high production costs and weak demand through 2023. Some companies flagged tentative signs of recovery in early 2024, but that optimism has since faded as high costs and labour shortages continued to weigh on them.