Europe can still be an industrial powerhouse—but it needs investment

Europe is grappling with the fear of industrial decline, with concerns about competitiveness, investment, energy costs, and supply chain resilience dominating policy discussions. However, I contend that this outcome is not predestined. Recent manufacturing indicators suggest there is still potential to build upon. The Eurozone manufacturing Purchasing Managers' Index reached 52.7 in August, marking its highest reading since May 2022 and signaling the strongest growth in factory output in four and a half years.

To transform this potential into reality, Europe must invest in its industrial ambitions at a pace and scale commensurate with the challenge. While Asian manufacturers have built highly integrated industrial ecosystems, European manufacturers lack access to the same advantages, including cheaper energy, lower raw material costs, and state support.

Nevertheless, Europe still possesses significant strengths, such as deep engineering capabilities, strong industrial know-how, trusted brands, and a history of innovation, energy efficiency, safety, and sustainability. In many categories, "Made in Europe" remains synonymous with durability, precision, and design quality.

Regulation has also positioned European industry as a global leader in energy efficiency and circularity, crucial elements for the future of manufacturing. The task now is to convert these strengths into sustained industrial scale and commercial competitiveness. Recent efforts by the Italian minister for enterprises and the European Parliament, including calls for stronger safeguards against unfair competition, closer scrutiny of non-EU imports, and robust support for strategic manufacturing sectors, are vital steps in this direction.

However, Europe faces structural challenges that must be addressed. Energy costs remain higher in Europe compared to other regions, capital markets are fragmented, and overlapping regulations create compliance burdens for manufacturers already operating with narrow margins. While measures like the Carbon Border Adjustment Mechanism and the steel safeguard framework respond to legitimate policy concerns, their cost and competitiveness effects must be carefully evaluated throughout the entire value chain.

Europe cannot rely solely on existing initiatives, such as the Clean Industrial Deal, to transform its industrial landscape. These initiatives must evolve from policy ambitions into practical instruments that deliver investment, enhance manufacturing competitiveness, and can be implemented swiftly to meet the demands of today's geopolitical and economic environment. Europe must move beyond the stage of self-diagnosis and focus on executing at speed and scale.

The industry must also accelerate its response. Investment decisions in automation, research and development, and new service-based models must be made without waiting for perfect conditions. Europe possesses the foundations of industrial leadership, but it lacks the policy conditions to sustain it at the pace required by the competitive environment. Losing industrial capacity results in factories closing, skills dispersing, and supply chains relocating, with no opportunity for recovery.

The next decade will not favor the largest legacy businesses. Instead, it will reward those who can translate capability into scale, and scale into competitiveness. It is time for Europe to invest in its industrial future, but this investment requires creating the right conditions.