Factors influencing industrial competitiveness in the EU
The 2014 European Competitiveness Report 'Helping Firms Grow' confirms that manufacturing in the EU still has considerable competitive strength. It also identifies factors to enable the EU to build on this strength and promote growth.
The report finds that the EU has maintained its competitive strength in a number of manufacturing sectors; thanks to highly skilled workers, high domestic content of export goods, and comparative advantages linked to complex and high-quality products.
It also confirms that the fall in the value-added share of manufacturing in recent years is due to falling relative prices of manufacturing in relation to services.
With respect to small and medium sized companies (SMEs), the report confirms that small and young firms find it more difficult to obtain bank credit compared to other firms, even if their financial performance is the same.
This indicates that the market for bank credit is not functioning efficiently. In parallel, smaller and younger firms are less likely to enter foreign markets.
Other factors shown by the report to influence industrial competitiveness include public administration, innovation, and energy prices.
Firm growth was found to be directly impacted by the efficiency levels of public administration. Regarding innovation, its employment-generating effects vary over the business cycle and were shown to be greater for product innovators than for process or organisational innovators.
Competitiveness was negatively affected by electricity and gas prices. These are higher in the EU than a number of other economies, and have recently risen more in comparison to other economies. The report also finds that energy efficiency improvements have not fully offset the negative impact of increasing energy prices.
EU exporters have comparative advantages in most manufacturing sectors
EU exporters have comparative advantages in most manufacturing sectors, including sectors characterised by high technology intensity - such as pharmaceutical products - and sectors characterised by medium-high technology intensity - such as chemical products, machinery and equipment, motor vehicles and other transport equipment.
Europe adds a high level of value to its exports, creating employment
The share of EU added value in EU manufacturing exports is around 85%, comparable with the domestic content of Japanese or US manufacturing exports. The domestic content of Chinese and South Korean exports is much lower, as their exported goods rely more on foreign intermediate goods and services, of which more than 5% originates from the EU. The report also finds that EU manufacturing exports are more sophisticated and complex than exports from many other economies and that EU manufacturing is characterised by a growing share of high-skilled labour.
Reindustrialisation targets are still at risk
The EU economy is still far from reaching its 2020 reindustrialisation targets: 20% of Gross Domestic Product (GDP) for manufacturing, research and development expenditure of 3% of GDP and gross fixed capital formation of 23% of GDP. The aggregate proportion of manufacturing in GDP fell from 18.5% in 2000 to just over 15% in 2013. The report shows that the declining share of manufacturing in the last 25 years is also due to the effect of the falling price of manufactured goods relative to the price of services. This is a consequence of higher productivity growth in manufacturing.
See the full report