The mood within Germany's energy-intensive chemical industry has improved significantly in June, largely due to the planned reduction of the electricity tax.

The business climate index rose to minus 8.9 points from minus 16.2 in May, according to the Munich-based Ifo Institute's Tuesday survey of industry managers. "The planned reduction of the electricity tax for the industrial sector is already giving the chemical industry a noticeable lift," said Ifo sector expert Anna Wolf.

This development has also brightened business expectations for major companies such as BASF, Lanxess, and Evonik over the coming months: this particular barometer jumped from minus 5.4 to plus 9.5 points--the highest level in two and a half years. However, the current situation remains bleak, with a score of minus 25.7 points, showing little improvement. The increased optimism has yet to translate into the present business reality for many firms.

"Order backlogs continue to be rated as extremely low," the Ifo Institute emphasized. While demand for chemical products has stabilized, many companies are still planning to cut production and reduce staff. "Some firms are benefiting from lower raw material costs and the first signs of revived demand in international markets," the report noted. At the same time, the sector's economic recovery is being hampered by the US's protectionist tariff policies, persistently high domestic costs, and ongoing geopolitical uncertainties.

"In this context, the government's recently approved public investments are providing urgently needed stimulus," said Ifo expert Wolf. The government plans to invest billions in infrastructure and military upgrades.

In Germany, the electricity tax is set at 2.05 euro cents per kilowatt hour for everyone. However, since 2024, the manufacturing sector and agriculture and forestry industries have benefited from relief: through a retroactive reimbursement, they pay only the European minimum rate of 0.05 cents. This measure is now set to continue, providing companies with annual savings of around three billion euros.

(Reporting by Rene Wagner, editing by Ralf Banser - For inquiries, please contact our editorial team at berlin.newsroom@thomsonreuters.com)