European industry shows recovery signs

European industry is showing signs of recovery after years of stagnation, driven by factors including rearmament, a boom in artificial intelligence, and disruptions in international trade. This marks a potential turning point for the region's manufacturing and production sectors.

Energy prices remain a risk

Energy prices remain a potential risk for the recovery. Since Russia's invasion of Ukraine in 2022, European industry has faced a significant increase in energy costs, which had previously hindered industrial revival efforts. However, recent data suggests optimism, with European industry appearing to recover for the first time since the war began.

Germany leads the recovery

Germany is leading the recovery, with the manufacturing PMI of the eurozone exceeding 52 points, surpassing the 45-point threshold seen in 2024. Germany's industrial production increased by 2% in August, exceeding economists' forecasts of around 0.5%. France is also showing improvement, with its manufacturing PMI above the 50-point threshold.

Defense spending boosts industry

The recovery is partly attributed to increased defense budgets across Europe, aimed at reducing reliance on the United States and containing the Russian threat. Defense spending is projected to reach 2.6% of European GDP by 2026, compared to 1.9% in 2024. This increase benefits the defense and aerospace industries.

European production capacity grows

In 2022, the EU produced between 300,000 and 400,000 shells annually, but now produces more than 2 million per year. While a significant portion of these expenditures still go to the United States, the trend is shifting. Of about 83 billion euros in contracts planned in Germany between September 2025 and December 2026, only about 8% go to American systems, such as the Patriot missiles.

AI infrastructure supports recovery

Investments in AI infrastructure also contribute to the industrial recovery. The European industry produces specialized machines, electrical systems, equipment, and lasers necessary for semiconductor manufacturing and the construction of large data centers that power AI.

Trade disruptions help European producers

Europe is benefiting from the disorganization of global trade caused by the war in Iran. Some German producers have profited from disruptions in the supply of raw materials from the Gulf, which are typically destined for Asian chemical companies with whom they are in direct competition.

Challenges remain for European industry

Despite these positive developments, European industry is not without challenges. Rising energy prices could eventually affect the industry, as well as competition from China, which poses significant problems for the German industry, particularly in the electric vehicle sector. The rise in interest rates, by hindering investment, is also a brake for a sector that faces high fixed costs and needs to borrow to finance the acquisition of expensive machines.

Positive momentum continues

However, the current dynamic, despite an unfavorable geopolitical context, is undeniably positive. The European industry is showing resilience and adapting to new challenges while leveraging opportunities in defense, AI, and global trade disruptions.