Many EU industries are showing clear signs of deceleration. The negative effects from the energy crisis and price “storm” have quickly spread from metal, automobile and chemical manufacturing to fertiliser and textile industries. The European Non-ferrous Metals Association confirmed that the EU's aluminium and zinc production capacity fell by 50% due to the energy crisis. The copper and nickel industries are similarly affected.
Meanwhile, according to the Wall Street Journal, the European fashion industry is also falling victim. According to the European Textile and Apparel Association, the energy costs of many textile enterprises have increased to 25% of their total production costs, leading to a decrease in business profits, with thousands of factories facing difficulties.
Rising input costs have forced many EU businesses to close, downsize or move production facilities to other regions where energy prices are lower. Many economic experts fear that this situation, if prolonged, could erode the industrial structure in Europe, pushing the region into a risk of de-industrialisation. Moreover, if global supply chains gradually move away from Europe, many workers will be at risk of losing their jobs.
Analysts have said that the main reason for the difficulties of EU businesses is the disruption of the global supply chain, the inflation rate, as well as the continuously escalating energy prices. According to the statistical office of the European Union (Eurostat), in October, the inflation rate in the Eurozone reached 10.7%, exceeding the previous forecast. In addition, because the knots of political tension, inflation and energy prices have not been removed, the global supply chain disruption is expected to continue in the near future.
In this context, the European Commission (EC) has just announced the relaxation of state aid regulations, in order to allow EU countries to provide subsidies and concessional loans to businesses affected by the high energy prices and the conflict in Ukraine. With the latest changes, EU businesses can receive state support of up to 4 million EUR in the form of loans, tax incentives, guarantees, etc.
In addition, businesses operating in energy-intensive sectors such as mining and steel production can receive support of 100 million to 150 million EUR. The EC emphasised that the above adjustments will help the governments of member countries be more flexible in implementing support programmes in accordance with the actual needs of the economy.
At the national level, EU member states have also introduced many measures to help industries overcome the current difficult period. Germany has just approved an energy bailout worth hundreds of billions of euros, including a plan to brake gas prices and cut fuel sales tax to support households and businesses. Meanwhile, French President Emmanuel Macron has also pledged to continue to share the cost burden with businesses.
EU businesses will continue to face many headwinds in the near future as issues related to energy supply and inflation have not yet been resolved. In that context, experts have called on governments in the region to pump more “tonics” to maintain the competitiveness of industries.
