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- 07/06/2025
- Article
- Chemicals
- Food/Feed
- Pharmaceuticals
Europe's economy: Chemicals and food see light at the end of the tunnel – pharmaceuticals lead the way
Desire to consume. Courage to invest. This combination works when the economy is booming, and the outlook is bright. The situation in Europe is not so positive yet. However, at least the continent's major countries are emerging from the slump or have already overcome it. Major areas of investment are currently driving and promoting the industries that characterise POWTECH TECHNOPHARM.
Written by Dr. Ulla Reutner
After the economic downturn of 2022 and 2023, followed by a cautious recovery in 2024, the European economy is becoming more stable. In the first half of 2025, the eurozone recorded moderate GDP growth of around 1.2 per cent, driven by a slight recovery in consumption, a stable labour market, and rising investment. Investment is being encouraged by the European Central Bank, which has lowered its key interest rate seven times since summer 2024.
With GDP growth rates of +1.4 per cent expected in the United Kingdom, between +0.6 and +0.7 per cent in France, and moderate growth of +0.7 per cent in Italy, three of the five largest economies are experiencing growth. Germany is still lagging behind, with most forecasts predicting growth close to 0 per cent for 2025, though the OECD and the EU Commission predict it could rise to +1.1 per cent in 2026. Spain is clearly in the lead with growth forecast at +2.6 per cent for 2025 and +2.0 per cent for 2026 thanks to strong domestic demand and the notable impact of the Recovery and Resilience Facility (an EU instrument designed to help overcome the consequences of the pandemic).
Spain seems to have done a lot of things right. The Spanish solid materials technology sector is also demonstrating remarkable adaptability in a complex global economic environment. Spain's recovery and resilience plan is one of the largest in the EU. It focuses primarily on green transformation, including the energy transition, and on digitalisation. Education and reforms to increase the efficiency of public spending are further priorities.
More digital and greener – the Spanish model
The Spanish model cannot simply be transferred to other countries. However, there are at least some elements that would also suit the rest of Europe well – and in many cases are already being ‘copied’. Digitalisation and decarbonisation in particular are areas of investment in which progress must be made, especially in Germany. Added to this is the trend towards nearshoring, the relocation of business processes or functions to nearby countries. Companies benefit by reducing costs while achieving advantages such as short transport routes, smooth cooperation, and legal certainty within the EU.
What can the largest target industries of POWTECH TECHNOPHARM expect against this backdrop? The chemical industry in Europe continues to face challenges. It is in the midst of a profound transformation process. ‘Chemistry still on standby’ was the headline of the German Chemical Industry Association (VCI) in June, referring to the economic situation of the industry. From January to April, production was 1.1 per cent below the previous year's level. Cefic, the EU Chemical Industry Forum, emphasises the ‘need for bold and urgent action to secure Europe's industrial future – not only to implement the Green Deal, but also to prevent further deindustrialisation in Europe.’ Like most analysts, the European association blames high energy prices, regulatory, labour, and raw material costs for the competitive disadvantage compared to the USA, China, and the Middle East. Capacity utilisation was at a historic low of around 75 per cent in 2023 and 2024 (average 81 per cent).
Chemical industry optimistic about the future for the first time in a long time
However, the first signs of stabilisation are visible. The VCI reports a rapid recovery from the tariff shock in April. ‘For the first time in a year, chemical companies are optimistic about the next six months. The industry is placing its hopes primarily on domestic business, while export expectations remain cautious.’ As a supplier to key industrial value chains, the chemical industry could benefit early on from rising domestic demand. To this end, the announced economic policy measures must now be implemented quickly. According to VCI CEO Wolfgang Große Entrup, there is finally a spirit of optimism: ‘The federal government is providing a breath of fresh air with tax and energy price relief.’ The chances for an upturn in 2026 are good.
Demand for the European chemical industry is being driven by construction, automotive (e-mobility, lightweight construction) and agrochemicals. Decarbonisation, together with the circular economy, is driving investment in new processes such as hydrogen technologies, CO2 capture and storage (CCS) and utilisation (CCU), as well as the electrification of processes. The optimisation of production processes and improvements in energy efficiency are also driving the industry forward. Digitalisation and AI are playing an increasingly key role in this context. However, relocation remains an issue, for example to Eastern Europe or the Middle East.
Many European chemical companies are expecting a recovery – but not until 2026. According to a survey conducted by management consultancy Horváth among board members and executives of leading European chemical companies, this could result in an increase in earnings of at least five per cent. That is, unless a global trade war abruptly halts any upward trend. Or consumer sentiment takes another turn for the worse in light of job cuts and a steady stream of unwelcome news from around the world.
Crisis-proof pharmaceutical industry focuses on nearshoring
The outlook is more encouraging for the European pharmaceutical industry, which is proving to be largely crisis resistant. Following the effects of the pandemic, growth has normalised but remains robust, particularly in biotechnology, oncology, and rare diseases. Stable growth of three to four per cent per annum is expected for 2025 and 2026. Nearshoring is a trend, meaning that production is being partially brought back to Europe. The global pharmaceutical market was worth around 1,464.1 billion US dollars in 2023 and has been growing steadily since 2015, with growth rates of up to ten per cent.
Germany, traditionally a country with intensive pharmaceutical research, is and remains an important production location and exporter of pharmaceuticals. With growth of +8 per cent, the development in 2022 and 2023 was particularly encouraging. In 2024, vaccine production in particular fell back to normal levels, resulting in declines in production and sales (-2.7 per cent) compared to the previous year. At the beginning of 2025, the important export business picked up momentum, probably due to Trump's threatened tariffs. Against this backdrop, a number of companies have built up their inventories in the USA, according to the Association of Research-Based Pharmaceutical Companies in Germany (vfa). It forecasts sales growth of +2.5 per cent for 2025 and +1.3 per cent for 2026. Investment in the pharmaceutical industry is also likely to continue to grow, by two and a half to three per cent, adjusted for price effects. This would bring investment to €15 billion in 2025 and €16 billion in 2026.
The vfa is counting on the new government and its unity in implementing the necessary measures so that Germany can continue to hold its own against the USA and China in the future. Europe should become the leading market for innovation, according to the association. In addition to product development, the efficient organisation of industrial high-tech production is also a plus. In global competition, the speed with which production capacities are built up is what counts. To this end, the association would like to see European support and the removal of bureaucratic hurdles.
Incidentally, Switzerland remains one of the most important locations for the pharmaceutical industry worldwide. In 2022, it produced pharmaceutical goods worth around 56.6 billion euros (2024 unknown), making it number one in Europe. The second major player is Ireland, which is considered the third-largest pharmaceutical producer worldwide. It continues to grow dynamically. Switzerland and Ireland are therefore likely to be neck and neck in the race for first place in the European pharmaceutical industry. The production value of the German pharmaceutical industry was around €38 billion in 2024. New growth potential for the European pharmaceutical industry is emerging from areas such as digital health, AI in drug development and mRNA technologies. Stable growth of three to four per cent per annum is expected for 2025/2026.
New EU life sciences strategy boosts pharmaceuticals and food
The life sciences strategy presented by the EU Commission at the beginning of July provides important impetus for the European pharmaceutical industry. It promotes R&D and multinational clinical trials. Biotech start-ups are to become marketable more quickly through an EU Biotech Act and be efficiently connected with investors and industry through a matchmaking platform. 300 million euros are to be made available for innovative solutions such as next-generation vaccines and affordable cancer treatments. Further funding will go towards AI technologies for the development of personalised therapy approaches.
But the food industry, especially new food, is also set to benefit from the EU Life Sciences Strategy, for example from funding of around 350 million Euro for fermentation technologies and alternative proteins. Sustainable food systems are also to be promoted. A balance is needed, as the food sector is under pressure from rising raw material costs, volatile energy prices, and changing consumer behavior. According to the European industry association FoodDrinkEurope, the food and beverage industry is Europe's largest manufacturing industry. It creates jobs for around 4.7 million people, generates revenues of 1.2 trillion Euro, and thus plays a key role in the EU economy.
While Germany's food industry has experienced a slight downward trend since 2022 due to high costs and weak demand, its French competitors have experienced moderate growth. Italy has also been recovering from the pandemic-related slump since 2022. Spain's production suffered from drought in 2022-23 (e.g., olive oil) but was able to grow again by almost 2 per cent in 2024. In Germany, the domestic market in particular is declining, where the industry generated 12.6 billion Euro in March 2025 (-1.7 per cent nominal). However, it continues to hold its own in foreign business, recording a 12.8 per cent increase in sales in March 2025 compared to the same month last year, to 7.5 billion Euro.
Food processing relies on Weihenstephan standards
The food processing sector is, after all, the fourth-largest industrial sector in Germany – with over 6,000 companies. The future also demands digitalization and automation. Modern production and communication technologies, such as the Weihenstephan Standards (WS), are also gaining importance as interfaces between packaging and production machines and higher-level systems.
Fermentation and the use of enzymes are clearly on the rise. Growth opportunities are forecast primarily for the convenience, ready-meal, and on-the-go sectors. Many manufacturers clearly have this in mind. 27.4 out of 100 manufacturers surveyed by the ifo Institute in May 2025 expected an improvement in business within the next six months (16.7 expect a deterioration). However, it is not clear whether this will be domestic or international. The export markets in Asia and the Middle East continue to offer growth opportunities.
Conclusion: Efficiency and innovation keep process industries fit for the global market
The European economy is in transition from stabilization to a moderate upswing. Investments in green technologies, digitalization, and regional resilience are particularly strengthening structurally more robust sectors such as pharmaceuticals and specialized mechanical engineering. Efficiency is becoming crucial for the chemical and food industries. Innovative products and, perhaps more importantly, automated, digitalized processes using AI are a solid foundation for surviving on the global market.
Author
Dr. Ulla Reutner
Chemist and freelance specialised journalist