The COVID-19 pandemic severely tested the resiliency of the European industrial base. Impaired supply chains led to shortages of commodities and components, impacting production. European manufacturing competitiveness further suffered in 2022 as the Russia-Ukraine War led to an energy crisis and exacerbated inflation.
In response to these pressures, we are now seeing a wave of trade and manufacturing protectionism. Countries are taking action to stay competitive, especially in energy-intensive areas including chip and electric battery production and defense R&D and manufacturing.
Europe in Numbers
Higher energy prices contributed to the downturn in 2022 in energy-intensive sectors such chemicals, plastics, and essential resources. However, input prices in December 2022 rose the least since December 2020, while output costs increased at the lowest rate in a year.
According to projections by the Eurosystem monetary authority and the European Central Bank, the euro area’s annual real GDP growth is expected to slow markedly in 2023, falling to just 0.5% from 3.4% in 2022. A rebound to 1.9% growth in 2024 and 1.8% in 2025 is forecast as energy markets rebalance, supply bottlenecks are resolved, customer/business confidence improves, and demand for exports strengthens.
Eurostat reported that seasonally adjusted industrial production in both the euro area and the EU fell by around 2.0% from September to October 2022. Production, however, was still up 3.5% in October 2022 compared to a year earlier.
There are a few other positive signs. S&P reported improved sentiment among manufacturers in December 2022. The S&P Global Flash Eurozone Manufacturing Purchasing Managers Index rose to 47.8 in December 2022, up from 47.1 in November. S&P said manufacturing production continued to contract in December, though at the weakest rate in six months.
Europe’s competitiveness against the U.S. and Asia depends on its ability to establish energy resilience in gas and electric power. According to the European Commission, non-Russian LNG imports in H1 2022 rose by 19bcm year on year. Non-Russian pipeline imports from Norway, Azerbaijan, the United Kingdom, and North Africa grew by 14bcm. In a bid to stabilize conditions, EU member states have agreed to new minimum gas storage obligations and have backed a 15% overall reduction of the bloc’s gas consumption.
As preparation for Sustainability Reporting, European organizations are intensifying efforts to meet green goals, including through mandatory reporting of non-financial key data and the integration of environmental, social, and governance (ESG) priorities into management structures.
The EU’s Corporate Sustainability Reporting Directive (CSRD) is an extension of the bloc’s Non-Financial Reporting Directive (NFRD). The NFRD currently applies to some 11,000 companies. Some 50,000 will have to apply the rules of the CSRD for the first time in FY 2024.
The CSRD applies to enterprises that meet two of the following criteria:
- more than 250 employees
- more than €40 million in turnover
- more than €20 million in total assets
Read on in "Industry today“: https://industrytoday.com/european-manufacturing-2023-threats-and-opportunities/