With industrial production languishing 9% below its pre-crisis peak, is this beginning of the end for European industry?
It is tempting to blame the Great Recession for the poor state of European industry. Certainly it has contributed to weak demand for goods, resulting in lost capacity, but there are other factors at play. International competitiveness has declined - in part due to the increasing costs of regulatory compliance - and industries that add little value, such as textiles, have all but disappeared.
However, there are some positives to be found. First, Germany – Europe's powerhouse, accounting for a quarter of total industrial production – is poised for growth having increased competitiveness through economic reform.
Second, despite stagnation at an aggregate level, industrial growth is strong in a number of smaller European economies. EU expansion, cheaper labour, and integrated supply chains with Germany are supporting high growth in central and eastern countries.
Finally, large sectors that are less energy intensive, such as machinery and transport, have benefitted from demand outside the EU.
So what does the future look like for European industry?
Germany will remain critical as it continues to focus on high value sectors, targeting exports to emerging Asian markets. Links to the country's industrial heartland will be important for growth in central and eastern economies such as Poland, the Czech Republic and Hungary, where manufacturing processes are interconnected....MORE