EU Manufacturing Slumps While Pharma & Germany Shine Amid Trade Pressures

The recent data points paint a manufacturing sector in the EU that is facing multiple headwinds, yet with bright spots and policy responses emerging. The contraction in industrial production over two consecutive years—versus an earlier recovery—suggests underlying demand weakness and cost pressures. In nominal terms, the value of sold manufacturing production fell from ~€5 975 billion in 2023 to ~€5 860 billion in 2024, indicating price or volume pressures.

At the subsector level, there is divergence: pharmaceuticals stand out with a sharp rise in output value (+12.7%) in 2024, while industries like chemicals and metals saw substantial declines—chemicals fell ~15%, basic metals and fabricated metal products ~8%, etc.. These contrasts hint at structural shifts: firms with high IP or export orientation (e.g. pharmaceuticals) doing better, while those with exposure to input cost inflation or trade competition are faring worse.

From a country perspective, Germany’s manufacturing remains central to the EU’s industrial fabric, generating upwards of 30% of EU manufacturing value added. Italy and France trail, showing that much of the EU floor remains disproportionately dependent on German industrial output. And countries like Ireland show an outsized manufacturing share in Gross Value Added (GVA) due to the presence of multinationals, especially in pharma and tech.

On the employment front, job losses in the car-parts supplier industry—exceeding 100,000 between 2024–25—underline vulnerabilities in automotive supply chains. Low EV uptake compounded by competition (especially from China) and regulatory uncertainty has intensified pressures. In response, the EU is considering new industrial policy instruments including local content rules under the planned Industrial Accelerator Act—proposals of up to 70% “Made in Europe” content for critical goods (autos, clean tech) are on the table.

Key risks include continued decline in traditional sectors (steel, metals, chemicals), inflation of input and energy costs, exposure to Chinese imports, and geopolitical/trade policy shocks. But opportunities exist: scaling pharmaceuticals and high-tech manufacturing that leverage strong IP, investing in green steel or batteries, aligning policy support (procurement, subsidies) to strengthen resilience in critical supply chains.

Open questions: will proposed policies like local content thresholds survive WTO scrutiny and internal EU consensus? Can Europe pivot fast enough in decarbonization and clean technologies without eroding competitiveness? How will small and medium enterprises withstand cost and compliance pressures compared to large multinationals?