Manufacturing

Manufacturing (Europe vs. Asia-Pacific)

Europe: pressure persists, even as “green re‑industrialization” accelerates.  Europe’s industrial cycle in 2025 has been choppy: Eurostat reported that EU industrial production fell sharply month‑on‑month in April 2025 (‑1.8% in the EU; ‑2.4% in the euro area), while still showing modest year‑on‑year gains versus April 2024 (+0.6% EU; +0.8% euro area). This pattern—volatile monthly swings with only mild annual improvements—fits the broader “stagnation with bursts” narrative for European manufacturing: some months rebound, but the underlying momentum remains fragile. UNIDO’s Q3 2025 manufacturing update similarly characterized Europe as “largely stagnating” while other regions posted clearer growth, highlighting that Europe has not yet regained a consistently expanding industrial footing.

Germany and France: divergent month-to-month moves; weak baseline in parts of the bloc:  Germany and France—still pivotal to European supply chains—showed mixed 2025 signals. An EU-member comparison for August 2025 (calendar‑adjusted) reported Germany’s industrial production down 4.6% year‑on‑year and France up 0.5% year‑on‑year, while EU production overall was up 1.1% year‑on‑year (and down 1.0% month‑on‑month). Germany’s dynamics also reflect “front‑loading” behavior linked to tariff uncertainty: the Bundesbank noted that industrial output rose notably in March 2025, with anticipatory effects ahead of expected tariff changes, and that pharmaceuticals (a sector with high U.S. export exposure) contributed strongly. France, meanwhile, posted a sharp monthly rebound in June 2025: Insee reported manufacturing output up 3.5% month‑on‑month (and total industry +3.8%), with a particularly large swing in transport equipment—driven by aerospace catch‑up and easing supply constraints in parts of the chain.

3) What’s structurally weighing on Europe (2025–2027): competitiveness, energy, and investment timing.  Europe’s policy conversation has increasingly shifted from short-run cyclical fixes to competitiveness and clean industrial capacity. The European Commission’s Autumn 2025 forecast explicitly notes that 2025 outperformance was partly due to “frontloaded exports” in anticipation of tariffs and stronger investment than expected, while still projecting only modest growth ahead in a challenging external environment. On the industrial strategy side, the Commission’s “Advanced Manufacturing” framing stresses that the sector is innovative yet “under pressure from abroad,” and highlights AI, robotics, additive manufacturing, and data-driven methods as key levers for resilience and competitiveness. The EU has also pushed explicit clean-tech manufacturing support: reporting on the Commission’s Clean Industrial Deal described plans to mobilize more than €100bn to support EU-made clean manufacturing and accelerate decarbonization, explicitly linking competitiveness to lower-carbon production capacity.

4) Asia-Pacific: still the growth center for “smart manufacturing” and industrial AI adoption.  Asia‑Pacific continues to anchor global Industry 4.0 scale-up. A widely cited market outlook projects the global smart manufacturing market to expand from $277.81B (2022) to $754.1B by 2030, and notes Asia‑Pacific as the largest region with a projected 15.7% CAGR over the period. That same outlook explicitly ties China’s smart manufacturing investment to the “Made in China 2025” modernization agenda, reinforcing the point that automation, analytics, and digital production platforms are being treated as national competitiveness infrastructure. Recent analysis from RAND adds context: China is deploying industrial policy tools “across the full AI technology stack,” with state support for research, talent, subsidized compute, and applications, helping accelerate AI adoption in sectors including robotics and electric vehicles.

5) China’s “Made in China 2.0” direction: AI-augmented, green-energy-powered, and robotics-heavy.  Rather than focusing on low-cost labor, China’s current manufacturing push is increasingly described as a new phase of MIC-style goals—AI‑augmented, greener, and more self-reliant. A World Economic Forum deep dive (June 2025) describes “Made in China 2.0” as an AI‑augmented, green‑energy‑powered transformation of China’s industrial base, with competition playing out in EVs, solar, robotics, and enterprise AI. Evidence of the scale of factory modernization is visible in reporting that, as of February 2025, China had built 30,000 smart factories, with tiers of “advanced” and “excellence” level sites—suggesting broad diffusion of digital manufacturing capabilities (not just pilots). On platform and software layers, China Daily reported Huawei’s FusionPlant 3.0 (launched June 2025) as a platform aimed at accelerating industrial AI agents and smart applications, while noting persistent constraints such as data fragmentation and compute bottlenecks—typical friction points as factories move from connectivity to intelligence.

6) India and Vietnam: beneficiaries of diversification, but with different maturity profiles.  India’s manufacturing ambition is explicit, but still a “share‑shift” challenge. A NITI Aayog–linked report notes manufacturing has historically contributed about 15–17% of India’s GDP and argues that reaching ~25% is crucial for a globally competitive, technology-forward manufacturing sector and large-scale job creation. Industry-facing summaries echo that manufacturing contributes roughly 16–17% of GDP and is targeted to rise toward 25% in the coming years, supported by initiatives such as PLI and Make in India. Vietnam, by contrast, continues to post strong industrial production growth in 2025: Vietnam’s statistics authority reported industrial production in December 2025 up 10.1% year‑on‑year, while Trading Economics (citing the General Statistics Office) reports full‑year 2025 industrial output growth of 9.2%. The same official series shows sustained double‑digit year‑on‑year growth in late‑2025 monthly readings (e.g., October and November 2025 at ~10.8% y/y).

7) Disruption and resilience: tariffs, trade rewiring, and “designing for volatility.”  Supply chains in 2025 were shaped by sharp tariff shocks and subsequent partial normalization. Reuters reporting described a period in which U.S. tariffs on many China-origin goods reached 145% (April 2025), contributing to trade disruption, with later reporting noting U.S. ocean imports fell sharply in May 2025 as the 145% tariffs stalled trade before a framework reduced rates (with caveats). At the macro trade pattern level, McKinsey’s 2025 update finds the United States continued shifting trade away from China and toward Mexico and Vietnam (including via “intermediate-step” routing), while Europe continued moving away from trade with Russia and toward other partners—evidence that reconfiguration is ongoing rather than complete. Operationally, GEP’s Supply Chain Volatility Index commentary in mid‑2025 described firms stockpiling inputs and reshaping supplier networks ahead of tariff changes and noted European manufacturers temporarily operating “at full tilt” due to front‑loaded orders—illustrating how policy uncertainty can pull demand forward without guaranteeing sustained expansion.

Bottom line (2026–2031): what to watch

• Europe’s key risk is not a single “collapse” but continued flatlining unless clean-energy costs, permitting speed, and advanced-manufacturing diffusion improve fast enough to justify new capex.

• Asia-Pacific’s edge is compounding: scale in smart manufacturing investment plus policy-led AI adoption is pushing factories from automation into AI-native operations, despite data and compute constraints.

• Diversifiers (India/Vietnam/Mexico) benefit most when they combine cost advantage with logistics, supplier depth, and digital readiness—because “volatility-by-policy” is increasingly structural, not episodic.