A New Industrial Strategy for Europe. Steering the Recovery by Ensuring EU’s Strategic Autonomy?

Policy Brief

Industrial sector is a driving force for the well-being of EU Member States representing more than 20% of the EU economy and employing around 35 million people, with millions of jobs involved both at home and abroad. It represents 80% of exports and is one of the primary reasons behind the EU’s position as the main global source and destination for foreign direct investment. Small and medium-sized enterprises (SMEs) make over 99% of all European enterprises and are an important economic and social backbone.

Since mid-2003, total industrial production has followed a relatively constant growth path. Production levels reached their highest in April 2008 and then began falling continuously up to April 2009 dropping 21 percentage points below its previous peak. However, production began steadily to pick up again, recovering over 90% of its pre-crisis value by May 2011.

In the second half of 2011 and 2012, industrial production in the EU-28 recorded a slow downward trend. Since the beginning of 2013, the value of the index slightly but steadily increased and almost regained its pre-crisis level by the end of 2017. In 2018 and 2019, industrial production in the EU-28 stagnated, before the collapse due to the Covid-19 pandemic. Covid-19 infection has been diagnosed in all EU Member States and in order to combat the pandemic, Member States have had to adopt a range of measures resulting in a negative impact on demand and production. This was due to the interruption of production in non-essential areas, restrictions on travel between EU countries and towards the EU, the cancellation of public events, and the closure of schools, restaurants, hotels and many shops. In March 2020, industrial production in the now EU-27 decreased by 10.9% compared to February 2020, and by 12.2% compared to March 2019. In the Euro zone, the decline was more marked. Production decreased by 11.9% compared to February 2020 and by 13.5% compared to the previous year. The fall continued in April 2020. EU industrial production decreased by 17.3% compared to March 2020 and by 27.2% compared to April 2019.

In the Euro zone, the decline was 17.1% during March 2020 and 28.0% over the previous year. The drop in industrial production involved many industrial groupings, namely intermediate goods, capital goods, energy, and durable and nondurable consumer goods. In the EU-27, industrial production of durable consumer goods showed the biggest reductions in March and April 2020 compared to the previous months (-25.3% and -27.8%). The drop in capital goods (-16.1% and -27.3%) was also quite pronounced. The production of intermediate goods decreased by 10.6% and 14.9%, while the production of non-durable consumer goods by only 1.2% in March, but by 10.7% in April. Energy production was slightly less affected by the crisis (-3.4% in March and -5% in April).

Between February and April, the industries which suffered the most were the production of motor vehicles (-79.1%), leather goods (-76.3%), wearing apparel (-53.2%), furniture (- 49.2%) and textiles (-35.5%). The only sectors that recorded positive growth rates were in pharmaceutical products (3%) and tobacco products (5.3%). On the other hand, looking at individual countries, between February and April, marked reductions were registered, ranging from a total drop in production of 42.1% in Italy to an increase in Ireland (+6.8%). From February to April, the countries with the largest drops in industrial production were, together with Italy, Slovakia (-41.6%), Luxembourg (- 41.1%), Hungary (-37.7%) and Romania (-36.7%). The decrease in the Euro area and the EU-27 was 27.0% and 26.4%, respectively. Industrial production declined in 23 Member States from February to April. In Finland, it remained unchanged, while an increase was recorded only in Ireland.