MNI BRIEF: Lead EU Firms Face 5YR Supply Challenge - ECB Study

The cost and difficulty of accessing workers in sufficient numbers will make Europe significantly less attractive as a production location over the next five years, a survey of leading firms published by the ECB has found, with many expected to relocate out of the EU.

So far little evidence has emerged of increased supply chain fragmentation following the Covid 19 pandemic and heightened geopolitical tensions. Some firms plan to relocate production into and within the EU as part of a process of “near-shoring” and “friend-shoring” which they hope will reduce costs and ensure continued access to critical inputs.

However survey participants agreed that it would be hard to substitute for critical inputs from countries deemed to be an elevated risk such as China, with the United States, Taiwan, India, Turkey and Russia each cited by one in 10 survey respondents as sources of supply uncertainty.

"On balance, the impact of changes in production location and cross-border sourcing of inputs on EU activity was perceived to be limited, while the impact on employment located in the EU was considered significant," the study concluded.