Industrial recovery strongest in the pharmaceutical sector, according to European Commission analysis

Out-Law News | 20 Feb 2014 | 9:50 am | 2 min. read

The pharmaceutical sector is the only EU manufacturing sector which has increased its share of output since 2000, according to new analysis of the EU's industrial recovery by the European Commission.

The Commission's 2013 industrial structure report (113-page / 4MB PDF) noted that the outlook of the sector was beginning to improve following the economic downturn of 2007/08, and "double dip" beginning at the end of 2011. However, most industrial subsectors were yet to regain their pre-crisis production levels, and the aggregate figures hid significant differences between member states and different sectors, it said.

"Manufacturing sectors have been hit more severely by the crisis than services: manufacturing, as a proportion of economic output, has declined significantly; however, there are significant differences between sectors," the report said. "For example the pharmaceuticals sector has experienced sustained growth since the start of the financial crisis, while high-technology manufacturing industries have, in general, not been impacted to the same extent as other industries."

According to the report, the relative success of the pharmaceutical sector could partly be attributed to "increased demand from population aging and to subsidised prices", as well as many healthcare services and products being subject to "low income elasticities, so demand is likely to have been sustained more than in some other sectors during the recent crisis period". In addition, the report noted a trend towards growth in high-tech industries, due to a combination of higher productivity and limited dependence on energy.

The EU industrial sectors worst hit by the downturn include construction, mining and low-technology manufacturing, according to the report.

According to the report, the service industries are growing more quickly than manufacturing industries. On average between 2000 and 2012, market services grew by 1.7% to make up half of EU gross domestic product (GDP), while non-market services now account for 23% of GDP. Employment in the service industries has also increased, while at the same time declining in manufacturing, the report said. Again, this could be attributed to "income elasticities", due to final demand shifting towards services as income grows over time.

Because of this, the report found that links between manufacturing and service industries were proving "mutually beneficial", with manufacturing firms increasingly using intermediate services as part of their business processes. This could be seen in the increased share of manufacturing employees with services-related occupations such as research and development, engineering design, software design, marketing, maintenance and support, the report said. These increased links implied that manufacturing acted as a "carrier" for certain services that could otherwise have had a much smaller market. An example it gave was the access provided to developers of software applications, or 'apps', by 'smart' mobile phone manufacturers.

"Through these linkages higher productivity growth in manufacturing can spill over to service sectors," the report said. "This is particularly important in view of the fact that, in the period 2001-2010, employment grew only in the service industries. Hence, a strong manufacturing sector can help mainstream competitiveness gains across other sectors of the economy."

However, the report said that more investment in industry was needed to promote and encourage recovery, noting that foreign direct investment (FDI) into EU manufacturing had fallen by around 30% since 2007.