Industrial production in the European Union in 2023-2025 is experiencing a noticeable decline and recovery problems. The main reasons for the decline in industrial production in the EU are high energy prices, general weakness in demand, and structural problems in the economy.
Current situation and statistics
In June 2025, industrial production in the EU fell by 1% compared to May, and by 1.3% in the eurozone. Despite this, in annual terms, June 2025 saw slight growth of 0.5% in the EU and 0.2% in the eurozone, indicating some recovery, but with significant variations between countries.
In 2023-2024, the decline was more pronounced: for example, in January 2024, the decline was 2.1% in the EU compared to the previous month, and by the end of 2023, the industry faced a “shallow technical recession.”
The sharpest declines in various months were recorded in countries such as Ireland (where the decline in industry is linked to changes in the activities of large multinational companies), Bulgaria, Hungary, Slovenia, and others.
Germany, the EU's largest economy, is experiencing a severe decline in industrial production due to a sharp rise in energy prices and a general deterioration in business activity in the sector.
The main reasons for the decline in production are high energy prices following the EU's embargo on Russian coal and oil supplies, as well as a reduction in purchases of Russian gas, which previously accounted for about 40% of European imports. This has led to structural problems in the European economy, including deindustrialization, weak demand, and high inflation. There is already a clear trend towards the transfer of production capacity to regions with lower costs.
Experts note that the decline in EU industry is not a temporary cyclical phenomenon, but has deep-rooted causes, and that restoring full production activity will take time and require a review of energy policy.
Which sectors in the EU have been hit hardest?
The following sectors have suffered the greatest losses in EU manufacturing:
Metalworking: production decline of about 3.3%, significant capacity reductions at aluminum and steel plants. In 2022-2023, the EU lost up to 30% of its primary aluminum production capacity.
Mechanical engineering: decline of approximately 5.3%, including the automotive sector, where weak demand and high energy prices are leading to production and job cuts.
Electrical engineering, electronics, and information and computer technology: decline of approximately 5.4%, although some IT segments remain more stable.
Chemical industry: significant losses in both output and turnover; more than 70% of fertilizer production has been either shut down or suspended due to expensive gas. Production in the chemical sector declined by almost a quarter in 2022-2023.
The paper industry and the production of glass and ceramics also continue to experience a decline due to high energy costs.
The automotive sector, especially electric vehicles and the related supply chain (chips, engines, batteries), is suffering from weak demand and cutbacks.
As the data shows, the biggest decline has been recorded in energy-intensive and technologically complex sectors of EU industry.
These problems also have an impact on employment.
The decline in industrial production in the EU has had a mixed effect on unemployment. Despite the downturn in the industrial sector, unemployment in the EU and the eurozone has remained relatively low in recent years and has even fallen. This is due to several factors.
Low overall unemployment rates — around 5.9% in the EU and 6.4% in the eurozone at the beginning of 2024-2025 — due to a shortage of skilled workers and an aging population. Despite factory closures and job losses in industry (especially in Germany and Italy), demand for workers remains strong in the social sector and some other industries.
Companies are optimizing and automating production, which temporarily reduces the number of jobs, but at the same time creates a need for new skills.
Nevertheless, regions with the greatest decline in industrial production are seeing rising unemployment due to factory closures and job losses in industry. In the long term, deindustrialization and structural economic problems could lead to higher unemployment if measures are not taken to retrain workers and stimulate economic activity.
The most affected regions are Germany and Italy
Production in Germany and Italy is declining particularly sharply.
The high openness of the German economy and its heavy dependence on exports (34% of GDP comes from exports) make it vulnerable to weak global demand and supply chain problems. The key sector, automotive manufacturing, is experiencing a sharp decline due to falling demand for traditional cars, difficulties with the transition to electric vehicles, and a slump in key export markets such as China and the US. High energy prices and rising CO2 emissions costs have hit energy-intensive industries hard, reducing profitability. Structural problems include insufficient innovation and new technology adoption, as well as a shortage of skilled labor. The economic crisis in Germany by 2024-2025 has led to a recession with a projected decline in GDP of up to 2.5%.
Italy's industrial production is closely linked to the situation in Germany and other major EU economies, so the crisis in Germany is also having a negative impact on Italy. There has been a slowdown in domestic and external demand, in particular a decline in exports to EU countries and a weakening of the Chinese market, which was previously important for Italian manufacturers. Italy's economy is characterized by low productivity growth and structural difficulties, exacerbated by the general weakness of European and global trade. Italian industry is in a prolonged downturn with a steady decline in production and exports.
Overall, both countries are suffering from a combination of external factors (energy crisis, sanctions, global economic instability, weakening Chinese demand) and internal structural problems, leading to a sharp decline in industrial production and negative economic prospects.
Are there risks for investors?
The risks for investors in the EU against the backdrop of falling industrial production are real and quite serious. The decline in industrial production in the EU is particularly noticeable in energy-intensive industries and mechanical engineering, which reduces economic activity and business profitability. Decrease in foreign direct investment: capital inflows into the EU have been negative since the end of 2022, while investment outflows have increased several times over, reflecting the region's declining investment attractiveness.
Rising electricity and gas prices threaten the EU's industrial base, reduce the competitiveness of businesses, and increase production costs. Excessive bureaucracy and strict regulatory measures complicate business operations and investment in key areas, including technology and industry. Sanctions, trade wars, and geopolitical instability increase uncertainty and risks for investors, including the risks of key technology transfer.
Some large companies are moving production to lower-cost regions, such as the US and Asia, further reducing the EU's industrial capacity.
As a result, the situation in the EU increases investment risks, reducing the region's attractiveness for long-term capital investments. High costs and geopolitical challenges require action on the part of the EU authorities to stabilize the situation and support industry and investment.
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