The EU is right to worry about its industrial base. In the first quarter of this year, real manufacturing gross value added fell by 2.1 per cent year-on-year, the steepest decline in more than two years. But its new ambition to lift manufacturing to 20 per cent of output by 2035 risks turning a legitimate strategic concern into an unrealistic project that undermines the bloc’s economic credibility.

That target is one part of the EU Industrial Accelerator Act’s bold proposals. After repeated shocks, the ambition is defensible. Europe must keep more value at home, reduce its dependence on external suppliers and rebuild industrial capacity, all while accelerating the green transition.

The problem, however, is that the arithmetic behind the IAA’s 20 per cent manufacturing target does not add up to success.

Outperforming growth

In 2025, EU manufacturing GVA stood at €2.66tn while GDP was €18.8tn. That puts manufacturing’s share at 14.2 per cent of EU GDP. Let’s say that, consistent with its long-term average, EU GDP grows 1.2 per cent in real terms each year between 2026 and 2035. Manufacturing would need to expand by 6.8 per cent annually to reach a 20 per cent share. Within a decade, manufacturing would have to be almost twice as large as it is today.

A stronger economy would not make reaching that target easier. The faster the economy expands, the harder it becomes for manufacturing to claim a bigger share of it. The target requires manufacturing to outperform the rest of the economy consistently for a decade. That’s not a marginal policy adjustment.

The target requires manufacturing to outperform the rest of the economy consistently for a decade — that’s not a marginal policy adjustment

History offers a useful benchmark, and it does not work in the European Commission’s favour. Since 1995, when comparable sectoral national accounts data first became available, EU manufacturing has rarely delivered the kind of outperformance the IAA target implies. Our analysis shows that manufacturing has only exceeded the 6.8 per cent growth required six times.

Five of those episodes occurred during exceptional rebound periods following major global shocks, including the aftermath of the global financial crisis and the post-pandemic recovery. The only other comparable year was in 2000, when export demand, competitiveness conditions, financing and investment were all working to benefit Europe.

Today, the world looks vastly different: trade is more fragmented, industrial policy is more inward-looking and policy uncertainty is much higher. None of these factors play in manufacturing’s favour.

Further reading on European industry:

Simultaneously, Europe begins the 2026–35 period with the basic preconditions of industrial expansion severely constrained. High gas and electricity prices are elevating production costs. Manufacturing employment is falling in key economies, while shortages in transition-critical occupations are at historically high levels across the bloc. Fiscal space is limited, and fDi Markets estimates showing foreign direct investment capital expenditure in manufacturing dropping year-on-year since 2022 suggest it won’t be financing a revival.

The IAA’s permitting reforms and industrial acceleration areas move things in the right direction. But Europe’s record of slow execution suggests that political will does not automatically translate into fast execution.

Credibility test

In short, the 20 per cent target requires more than better industrial-policy design. It requires Europe’s industrial base to overcome nearly every constraint that has held it back in the first place.

This is where it becomes a credibility test. Policymakers are right to prioritise specific capabilities like clean technologies and critical raw materials. But they have not shown why these priorities require a blanket manufacturing target, or how such a shift would avoid diverting capital, labour and political attention from other high-value parts of the economy.

EU manufacturing has rarely delivered the kind of outperformance the IAA target implies

A more credible strategy would focus on specific delivery targets, not an across-the-board quota. The Commission needs to ask itself: what baseline assumptions underpin the 20 per cent ambition? Which constraints should take priority? What costs, benefits and modelling assumptions sit behind the path to 2035?

Leaving these questions open risks repeating a familiar EU pattern: announcing industrial goals before a credible path to delivery is in place. Look at the 2020 hydrogen strategy, which set targets that EU auditors later said were not based on robust analysis.

Dropping the 20 per cent target may be politically difficult, but it would strengthen the credibility of Europe’s industrial strategy. A better objective would remove constraints on EU manufacturers scaling organically, especially excessive regulation and uncompetitive tax policy, and measure success by delivery — not a single GDP percentage.

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