The energy crises of the last few years, post-pandemic supply chain disruptions and low demand are the main factors that have negatively affected the manufacturing sector in Europe.
Energy-intensive sectors in particular are under pressure due to increasing energy costs and supply challenges. Moreover, competition from China and weakening external demand have led to a decrease in new orders. Some European producers are facing more competition due to the increase in Chinese exports to Europe. Moreover, the prospect of a soft landing in the US economy and growth problems in China could put pressure on external demand in Europe.
ING's report notes that in the short term, the reduction in inventories and the easing of interest rates may stimulate demand to some extent. However, structural factors, especially energy crises and policy uncertainty, are expected to limit the long-term growth potential in Europe. Moreover, the production cycle may be altered as manufacturers prefer to hold larger inventories instead of the traditional “just-in-time” supply model.
Overall, the recovery remains fragile and factors such as volatile energy prices, labor shortages and weak external demand will continue to weigh on European industry.
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