Europe faces a major challenge to regain ground in competitiveness and close an annual investment gap of between 750 billion and 800 billion euros, according to the McKinsey Global Institute report "Catalyzing Competitiveness: Where Investment Is Going and Why." The document notes that, while Central Europe's traditional industry is undergoing a structural slowdown, Spain and Portugal stand out as enclaves with relatively more favorable conditions for certain industrial investments.
According to this analysis, Spain combines several elements that can favor the arrival of industrial projects, particularly those with intensive energy use. Among these are relatively competitive energy costs, direct access to the European single market, and a path of constant improvement in its investment levels.
The study emphasizes that the investment engine of the major Western economies has been slowing down in the last two decades, with direct effects on the region's future competitiveness and productivity. With an annual gap of between 750 billion and 800 billion euros, the report stresses that Europe needs a strong boost in private investment to strengthen its productive capacity and innovative base.
However, the report makes it clear that this slowdown is not evenly distributed across the continent. Germany has seen its net productive investment rate fall to 0.2% of GDP, largely due to prioritizing fiscal consolidation policies and the constitutional brake on borrowing, the Schuldenbremse.
This behavior contrasts directly with the evolution of the Iberian Peninsula, where greater investment dynamism is observed. In Spain's case, the net productive investment rate exceeds 2% of GDP, well above the German rate.
The report places Spain, along with France and Italy, in the group of countries that have managed to regain a more vigorous investment momentum after the eurozone crisis, leaving behind the sluggishness of the following years.
Portugal, for its part, registered a net productive investment rate of 4.6% of its GDP in 2024, placing it among the European economies with the highest levels of net productive investment, consolidating its attractiveness for new projects.
Even so, the analysis warns that relevant differences persist in the accumulated productive capital stock. Spain has a higher productive capital stock per worker than Portugal, but it still remains below benchmarks such as France, Germany, or the United States.
ENERGY COSTS
The report identifies energy costs as one of the elements that weigh most heavily today on industrial investment decisions. The increase in energy prices has contributed to the closure of nearly 40 million tons of petrochemical capacity since 2022, directly impacting energy-intensive sectors.
In this scenario, Spain and Portugal enjoy a relative advantage within Europe thanks to a greater penetration of renewable generation and lower electricity prices than in other industrial areas of the continent. In 2024, the average price of electricity for industrial use in Spain stood at around $120/MWh, compared to approximately $200/MWh in Germany and an average of about $155/MWh in the EU-27.
The study also notes that some new electro-intensive investments are already shifting towards areas with cheaper and more stable energy, notably the Iberian Peninsula and the Nordic countries, which are gaining weight in the expansion plans of large companies.
These conditions could drive the installation of projects related to battery materials, electrified industries, data centers, and activities with intensive electricity use. At the same time, the report recalls that competition remains global and very demanding.
Even in segments such as battery gigafactories, where Europe has relatively competitive locations, costs continue to be clearly higher than in China, which limits the capacity to attract a larger share of investment.
THE CHALLENGE OF COSTS AND SPEED
Despite the geographical and energy advantages, the study warns of the competitive gap compared to major global investment hubs, represented by China and Taiwan. Levelized costs in advanced economies are generally at least 50% higher than in the countries that concentrate most of the international productive capital, and can be up to 300% higher in R&D projects.
A significant part of this difference is explained by higher labor costs that, in many state-of-the-art facilities, are no longer fully offset by higher productivity levels, given that technologies and processes tend to converge across geographies.
Time-to-market has become a decisive factor in industrial competitiveness. A significant fraction of the cost disadvantage suffered by Western operators does not come from raw materials, but from delays in the preparation, development, and execution of projects.
The report points out that, in certain sectors, the implementation of more agile development models would allow for a notable reduction in deadlines and, consequently, a reduction in the leveled costs of industrial assets.
LEVERS FOR INDUSTRIAL REBALANCING
In order for private investment to become attractive again in a fragmented environment, the report proposes an action plan structured around seven strategic levers.
Firstly, it is proposed to optimize capital expenditure (Capex) through the industrialization of construction, the use of modular designs, and more agile administrative processing to reduce bottlenecks.
Likewise, the document suggests offsetting high wage costs by boosting labor productivity through advanced automation and artificial intelligence (AI), supported by fiscal and regulatory reforms, as well as flexible hiring models inspired by Danish flexicurity.
Another key axis involves ensuring a clean and abundant energy supply, promoting the relocation of electro-intensive industries to regions with competitive renewable tariffs, such as Spain and Portugal or the Nordic countries, to take advantage of their cost advantage.
Furthermore, companies can reduce their time-to-market by applying parallel design methodologies in the research and development phases, avoiding excessively linear sequences in projects.
In order not to compete exclusively on price, the report proposes as a priority line of action to bet on innovation and technical differentiation in specialized high-value-added niches, where brand reputation or patents allow for sustaining premium prices capable of absorbing structural overcosts.
Lastly, the analysis recommends concentrating capital in critical sectors less sensitive to cost and essential for geopolitical security, such as advanced chips, biotechnology, or supercomputing infrastructure for AI. This effort should be accompanied by a transparent industrial policy that resorts to specific subsidies, selective tariffs, and investment controls to correct international market asymmetries.
The report concludes that rebalancing investment will require boosting productivity, innovation, and specialization, along with policies that contribute to balancing competitive conditions.