Global Macro Research
GrowthWhat is the future of European supply chains?
Secular trends including the rise of AI, the green transition, and geopolitical fragmentation are exacerbating vulnerabilities in the EU’s industrial supply chains. But the bloc’s strategy is changing, and involves de-risking at key nodes in critical supply chains and developing leverage in areas of strength.
Author
Felix Feather
Economist
Duration: 1 Min
Date: 12 Jan 2026
Key Takeaways
- The Covid pandemic and Russia-Ukraine war exposed Europe’s supply chain vulnerabilities, driving significant inflation and a 1.9% GDP loss between 2020 and 2022. Ongoing secular trends like the energy transition and AI risk exacerbating these challenges.
- Europe’s reliance on foreign suppliers for semiconductors is a major weakness. The Chips Act aims to double the EU’s global chip market share, but progress is slow.
- The EU has been shifting from Eastern pipeline gas to more LNG imports from the US, Norway, and North Africa. This diversifies supply but brings new logistical and cost challenges, especially for landlocked countries, and may run up against climate goals.
- The green transition is increasing the EU’s reliance on critical raw materials, particularly rare earths, where China dominates extraction and processing. But untapped resources in Portugal and Scandinavia could help. And the Critical Raw Materials Act targets more domestic recycling as another source of supply.
- Defence and civilian infrastructure investment are increasingly linked. The Readiness 2030 plan and NATO targets are driving investments in dual-use projects, such as transport and grid enhancements.
- Europe’s pursuit of economic resilience is increasingly doubling as a growth strategy. By investing in strategic infrastructure and industrial capacity, the EU could trade off some short-term fiscal stability to build long-term economic strength.
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