COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS The 2025 Annual Single Market and Competitiveness Report
Date: 2025-01-29
Institutions: Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs, European Commission
Subjects: EU energy policy, circular economy, competitiveness, digital transformation, economic growth, green economy, innovation, investment, research and development, single market

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 29.1.2025  COM(2025) 26 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS The 2025 Annual Single Market and Competitiveness Report {SWD(2025) 11 final} - {SWD(2025) 12 final}  
 
 
Introduction  

The European Union’s ability to compete and thrive in the global economy amidst current 
geopolitical challenges is essential for Europe’s prosperity. It hinges on a clear identification 
of  its  strengths  and  weaknesses  to  underpin  a  forward-looking  strategy  addressing  its 
shortcomings, bolstering its strengths and unlocking new opportunities. 

At the heart of the EU’s long-term competitiveness lies the Single Market, home to nearly 
450 million people, 23 million companies and a GDP of EUR 17 trillion. It positions the 
EU as one of the three largest economies in the world and accounts for about one-sixth of the 
global economy. However, persistent barriers in the Single Market and administrative burden 
hold it back from reaching its full potential. Progress in Single Market integration has slowed, 
while  barriers  remain,  in  particular  for  services.  Companies,  especially  SMEs,  relay  their 
struggles  in  facing  administrative  burden  and  complying  with  government  regulation.  This 
makes it harder to do business and reduces opportunities for businesses to scale up. 

The competitiveness of the EU economy faces mounting pressure from several angles. It 
suffers from structurally high energy and electricity prices. The latter are currently 2-3 times 
higher than in the US1. European companies face challenges on their investment journeys with 
difficulties  in  commercialising  their  research  results,  hindered  by  insufficient  public  and 
private  investments  into  the  most  promising  technologies  and  sectors.  As  a  result,  the 
development  and  uptake  of  digital  and  other  advanced  technologies  are  trailing  competing 
economies.  Skilled  labour  is  also  in  short  supply.  The  increasingly  unstable  geopolitical 
situation calls for close attention to strategic dependencies. 

Productivity in Europe is persistently lagging behind the US but has great potential to 
catch  up.  EU  labour  productivity,  measured  by  purchasing  power  adjusted  GDP  per  hour 
worked, stands at 77.8% of US levels in 2023 (see Figure 1). On the upside, it is ahead of the 
UK and Japan, both in levels and dynamic over the past years. Within the EU, this average 
masks some differences, with Member States that joined more recently catching up with US 
levels. 

The attractiveness of Europe as a business destination is in decline. Since 2008, a third of 
so-called ‘unicorn companies’ decided to relocate abroad2. Only 4 out of the 50 largest tech 
companies are based in the EU and none of the EU’s most valued companies have been created 
from the ground up3 in the last 50 years4, signaling a lack of market dynamism, insufficient 
innovation climate and high barriers to market entry and scale-up. As a result, confidence in 
the  EU  as  a  business  location  has  waned,  with  foreign  direct  investment  dropping  and 
significant amounts of households’ savings being invested elsewhere. At the same time, there 
is  a  vast  potential  to  increase  investment  in  sectors  and  technologies  key  for  EU 
competitiveness,  drawing  from  the  EU’s  strengths,  if  the  right  framework  conditions  are 
created.  

The Annual Single Market and Competitiveness Report provides the analytical context 
for the Competitiveness Compass, presented at the same time as the first major initiative of 
the new Commission. The report aims to provide a diagnostic to underpin the Clean Industrial 

1   Eurostat; US Energy Information Administration (EIA). See Section 3.3. 
2  

Former Prime Minister Draghi, “The future of European competitiveness – A competitiveness strategy for Europe”. 
Part A, p. 2. 

3   Rather than through mergers, acquisitions or spinoffs from established firms. 
4  

Former Prime Minister Draghi, “The future of European competitiveness – A competitiveness strategy for Europe”. 
Part A, p. 10. 

1 

 
 
 
Deal and the Single Market Strategy. It builds on the reports by former Prime Minister Letta 
on  the  Single  Market5,  former  Prime  Minister  Draghi  on  competitiveness6,  and  former 
President Niinistö on preparedness7. It responds to calls from businesses to put competitiveness 
at the core of the EU’s agenda8. 

Figure 1: Evolution of labour productivity in the EU and other advanced economies  

Source: AMECO database. GDP per capita in purchasing power parities (PPP) per hour worked. Values 
indexed with EU at 100 in 2023. 

With its 22 Key Performance Indicators (KPIs)9, the report provides an analysis of the 
key drivers of the EU’s long-term competitiveness and productivity, as well as the state 
of the Single Market. It provides a basis for discussion with Member States and the European 
Parliament, allowing to take stock of the Single Market and the EU’s competitiveness as part 
of an annual progress review10, following up on a request of the European Council11 building 
on the 2023 Communication on Long-term competitiveness of the EU12. It is supported by two 
Staff Working Documents providing additional data coverage and analysis related to the KPIs, 
an  overview  of  resilience  measures  by  selected  global  players,  and  a  monitor  of  industrial 
ecosystems.  These  elements  are  complemented  by  the  Single  Market  and  Competitiveness 
Scoreboard featuring an additional 150 indicators13.  

The report  identifies strengths  to build on and weaknesses to address. It  starts  from  an 
assessment of the functioning of the Single Market and moves on to take stock of the EU’s 
competitiveness along the three axes of the Competitiveness Compass. It examines the EU’s 
progress  in  closing  the innovation gap.  The report  then presents the state of play of drivers 
advancing the decarbonisation of industry and investment. Finally, the report looks at progress 
in strengthening economic security and reducing dependencies.  

Former Prime Minister Letta, “Much more than a Market”. 
Former Prime Minister Draghi, “The future of European competitiveness – A competitiveness strategy for Europe”.  
Former President Niinistö, “Enhancing the European Union’s Resilience for Future Uncertainties”. 

5  
6  
7  
8   Calls from the business community include, for example, the Antwerp Declaration for a European Industrial Deal. 
9   This  year’s  edition  of  the  report  departs  from  the  17+2  KPIs  from  the  2024  ASCMR,  complementing  with  alimited 

number of additions to deepen the analysis in areas of crucial interest. 

10   Communication ‘The Single Market at 30’ (COM(2023)162). 
11   The European Council (EUCO) Conclusions of December 2022 asked the Commission to present a strategy at EU level 

to boost competitiveness and productivity.  

12   Communication ‘Long-term competitiveness of the EU: looking beyond 2030’(COM(2023) 168). 
13   European Commission, Single Market Scoreboard. 

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77.8% of US level (2023) 
74.2% of US level (2022) 
23.8% for goods (2023) 
26.0% for goods (2022) 

7.6% for services (2023) 
7.8% for services (2022) 
0.9% (2024) 
1.1% (2023) 

3.87 (2023) 
3.80 (2022) 

SECTION 1 – A functioning Single Market  

K P I  
KPI 1: Labour 
productivity 
KPI 2: Integration in the 
Single Market  

GDP per hour worked in PPP terms 

Share of EU GDP represented by trade 
between EU Member States 

What it measures 

T a r g e t  

L a t e s t   E U  v a l u e  

KPI 3: Conformity 
deficit  

KPI 4: Ease of 
regulatory compliance 

<0.5% 

Share of EU Single Market Directives 
transposed by Member States for which 
infringement proceedings for incorrect 
transposition have been launched by the 
Commission 
Ease of regulatory compliance, based on 
survey data with companies responding to 
the question: “In your country, how easy is 
it for companies to comply with 
government regulation and administrative 
requirements (e.g. permits, reporting, 
legislation)? (1 = Extremely complex; 7 = 
Extremely easy)” in the survey for the 
Global Competitiveness Index of the 
World Economic Forum. 

Legend 

Improved 

Stable 

Worsened 

A  well-functioning  Single  Market  is  the  key  amplifier  for  productivity  growth  as  it 
provides  a  large  demand  pool  and  diversified  supply  sources.  It  provides  scale  for 
companies to innovate and grow. One of its core assets is a stable environment based on the 
rule  of  law.  Respect  for  the  rule  of  law  is  central  for  the  functioning  of  the Single  Market, 
providing a stable operating environment  that gives the EU and its Member States a global 
competitive  edge.  The  rule  of  law  ensures  a  business  environment  in  which  laws  apply 
effectively and uniformly, where businesses can work in another Member State on an equal 
footing with local companies, and budgets are spent on a transparent and objective basis.  

The integration of the Single Market is progressing with intra-EU trade increasing trend-
wise over the last decades. Cross-border trade in goods within the EU increased from just 
over  20%  of  EU  GDP  in  2018  to  23.8%  today  (KPI  2).  The  situation  with  respect  to  the 
integration of services is more mixed – increasing much slower and from much lower levels – 
from around 7% of GDP to 7.8% over the same period. In 2023, there was a sizeable drop for 
goods and a small drop for services14, but it continues to be significantly above pre-pandemic 
levels. An important part of the recent drop in the value of trade in goods can be attributed to 
the fall in energy prices, reducing the prices of traded goods, although there was also a drop in 
actual  volumes.  It  may  be  too  early  for  a  firm  conclusion  on  these  trends,  future  data  will 
provide further evidence.  

14   Apart from the clear price effect, there are several reasons that may have hindered intra-EU trade, including the growing 
relevance  of  global  value  chains,  geopolitical  tensions,  structural  changes  in  the  EU  economy  such  as  the  decline  of 
manufacturing and rise of services, the United Kingdom's decision to leave the EU, and persistent barriers to trade and 
investment such as non-tariff barriers and regulatory differences.  

3 

 
 
 
 
 
 
 
 
 
 
 
1.1  Barriers in the Single Market 

Over the years, the EU has removed many barriers to trade in the Single Market, but at 
the same time new barriers and sources of fragmentation continue to appear. The Single 
Market Barriers Tracker15, as well as analysis by the European Round Table for  Industry16, 
EuroChambres17, and other stakeholders reveal a pattern of increased barriers. Monitoring from 
different perspectives is necessary in order to identify the adequate policy response to reduce 
these barriers. 

As  regards  services,  the  Single  Market  remains  fragmented  by  a  combination  of 
regulatory and administrative barriers. The most important regulatory barriers include legal 
requirements  on  access  to  regulated  professions  and  on  the  companies  that  may  perform 
services,  along  with  diverging  employment  and  tax  laws.  Administrative  barriers  include 
complex  declaration  requirements  for  the  posting  of  workers  and  certifying  social  security 
coverage.  The  complexity  of  company  law  and  the  divergencies  between  rules  in  different 
Member States that apply when setting up a new business or registering a subsidiary remains a 
barrier for services that depend on proximity to their customers. 

Figure 2: Reported barriers by categories, split among top 15. 

Source: Single Market Barriers Tracker dashboard, using Your Europe, SME feedback survey, SOLVIT and Your 
Europe Advice (YEA) data, between 2022 and October 2024.  

Intra-EU  cross-border  circulation  of  goods  often  faces  various  types  of  barriers,  as 
illustrated  by  data  from  the  Single  Market  Barriers  Tracker.  For  instance,  national 
requirements on packaging and labelling force producers to make products tailored for specific 
Member States – instead of servicing the whole Single Market. Market access for goods is also 
under  pressure  through  legal  and  administrative  barriers  to  entry,  including  obtaining 
authorisations and permits. Non-regulatory barriers, such as territorial supply constraints18, are 
regularly reported by stakeholders (see Section 1.4 below on the free movement of goods). One 
of  the  obstacles  for  goods  is  how  market  access  is  reduced  by  requirements  of  extended 
producers’ responsibility schemes. Market requirements set by Member States for the mutual 
recognition of non-harmonised goods, and the export, transport and use of secondary materials 

15   The Single Market Barriers Tracker is a tool created under the Single Digital Gateway Regulation to collect data on Single 

Market obstacles from citizens and businesses: Single Market Barriers Tracker. 

16   Single Market - Compendium of obstacles - 13 Feb. 2024. 
17   Eurochambres Single Market Survey: Overcoming obstacles, developing solutions. 
18   Territorial Supply Constraints are barriers imposed by private suppliers in the supply chain, which can affect retailers or 
wholesalers. These may impede or limit the retailers’ or wholesalers’ ability to source goods in other EU countries than 
the one they are based in, and/or prevent them from distributing (i.e. reselling) goods to other EU countries than the one 
in which they are based. 

4 

 
 
 
 
 
have also further fragmented the Single Market. Figure 2 provides an overview of the 15 main 
barriers, as reported in the Single Market Barriers Tracker. 

1.2  Implementation and enforcement in the Single Market  

The EU Member States and the Commission share the responsibility for enforcing EU 
law, including  ensuring that Single Market  rules are  complied with, and that people’s 
rights are enforced. The Commission’s work on ensuring compliance combines three main 
aspects:  strengthening  barrier  prevention,  collaboration  with  Member  States,  and  corrective 
enforcement actions. 

As for the preventive aspect of enforcement, the Commission works in close cooperation 
with the  Member  States  to ensure effective implementation of the existing notification 
mechanisms and their transparency. In response to Member States’ request, the Commission 
has launched  and  is  further developing the Single Notification Window,  an online platform 
providing an overview of and simple access to different notification procedures stemming from 
sectoral legislation with relevance for the Single Market. 

The  Single  Market  Enforcement  Taskforce  (SMET)  fosters  a  sense  of  common 
responsibility between the Commission and Member States, to properly implement EU 
rules  and  work  together  to  tackle  specific  barriers  in  the  Single  Market.  The  SMET 
report19 provides a comprehensive overview. Examples of the results achieved over the past 
couple of years are the removal of more than 90 administrative barriers to permitting for wind 
and  solar  energy  and  the  support  for  introducing five  good  permitting  practices  which  help 
increase the investments in renewable energy. Cooperation within SMET also reduced IBAN 
discrimination  in  five  areas  (taxes,  welfare  payments,  pensions,  health  care  payments  and 
telecommunications). The identification of new SMET projects in other areas, such as digital 
services, packaging and labelling requirements, and mutual recognition is ongoing20.  

As to the corrective aspect of Single Market enforcement, there is a steady improvement 
of the situation. According to the Single Market Scoreboard21, there is a further decrease in 
the number of Single Market infringement cases (-6% within the last year) that the Commission 
has  launched  against  EU  Member  States  for  having  failed  to  properly  implement  EU 
legislation22.  The  number  of  infringements  per  Member  State  varies  considerably  and  the 
sectors concerned with the most Single Market infringement cases are the environment (35%), 
transport (17%), and energy (12%). The Commission  also  continues  its enforcement  of EU 
competition law against anticompetitive company behaviour that creates barriers to a proper 
functioning  of  the  Single  Market.  According  to  the  Court  of  Justice,  individuals  can  claim 
financial compensation if a Member State seriously breaches the EU law.  

The conformity deficit is slowly receding from previous highs but still falls short of the 
EU target value23. This is measured as the share of EU Single Market Directives transposed 
by Member States for which infringement proceedings for incorrect transposition have been 
launched by the Commission (KPI 3). After the conformity deficit increased markedly from 
0.8% in 2018 to a peak of 1.4% in 2020, it is now slowly receding to 0.9% in 2023. It however 
remains well above the EU goal of 0.5%.  

19   European Commission, SMET report. 
20   SMET report. 
21   Single Market Scoreboard. 
22   Single Market Scoreboard. A reduction in pending infringement cases has been achieved despite the fact that 25% more 

new cases were launched compared to the previous reporting period (172, up from 138).  

23   European Commission – Single Market Scoreboard. 

5 

 
 
 
The  Internal  Market  Emergency  and  Resilience  Act24  strengthens  crisis  preparedness 
and  response  by  addressing  disruptions  in  supply  chains  and  improving  coordination 
across Member States. The Commission is implementing contingency plans, including crisis 
simulations  and  enhanced  communication  tools,  to  safeguard  the  seamless  operation  of  the 
Single Market for citizens, businesses, and governments. 

1.3  Cross-border provision of services in the Single Market 

The  services  sector  accounts  for  around  70%  of  EU  GDP  and  employment25,  yet  the 
Single  Market  for  services  continues  to  perform  below  potential.  Trade  in  cross-border 
services is less than a third of that in goods26 and, contrary to goods, not higher than services 
trade with non-EU countries. Labour productivity growth in services also remains low27 and 
negatively  impacts  competitiveness  of both the services sector itself and  EU manufacturing 
industries, as services provide almost 40% of the value added in manufacturing28. 

Under the Services Directive, which aims to remove barriers to investment and trade in 
cross-border services, Member States enjoy  significant freedom to set their own  rules. 
This leads to a great diversity of national rules. While specific national requirements may be 
justified and proportionate to meet legitimate public interest objectives, they impose barriers 
on  professionals  and  companies  wanting  to  offer  services  in  other  EU  Member  States.  The 
Commission  estimates  that  despite  an  initial  reduction  of  regulatory  barriers  following  the 
transposition of the Services Directive, around 60% of these barriers are of the same type as 20 
years ago29, with limited mutual recognition in place.  

Services sectors such as construction and retail are economically important but perform 
below potential30. The supply of new housing and the renovation of Europe’s building stock 
is  slowed  down  by  a  complex  regulatory  and  administrative  environment  with  major 
divergencies not only between Member States, but also within Member States, which restricts 
the  provision  of  construction  services  cross-border.  Other  examples  include  restrictions  on 
retail establishment and on day-to-day retail operations that act as significant impediments to 
a  better  performing  retail  sector  with  spill-over  effects  along  the  supply  chain  and  on 
consumers.  

Member States are restricting access to more than 5 700 regulated professions in the EU31, 
representing approximatively 22% of the labour force32. The proportion of the workforce 
in  regulated  professions  varies  significantly  between  Member  States,  ranging  from  14%  in 
Denmark  to  33%  in  Germany33.  The  regulation  of  professions  can  protect  general  interest 
objectives but come at the cost of preventing domestic and other EU citizens from exercising 
these professions unless they meet requirements in national law. Looking at a set of professions 

Internal Market Emergency and Resilience Act. 

24  
25   Single Market Scoreboard, “Access to Services and Services Markets”. 
26   This is principally due to barriers mentioned in Section 1.1 above such as the regulation of professions and companies 
that  may  perform  services,  diverging  employment  and tax  laws,  complex  declaration  requirements  for  the  posting  of 
workers and certifying social security coverage.  

27   ECB, Eurostat, EU labour productivity growth in services is lower than in manufacturing (0.96% vs 1.55% over the period 
2010-2019). EU hourly labour productivity growth in services also lags behind the US (growth of 3.8% vs 12.4% over 
the period 2019-2024).  

28   ECSIP Consortium, Study on the relation between industry and services in terms of productivity and value creation. 
29   30 years of single market – taking stock and looking ahead; Business Europe, Examples of Single Market barriers for 

businesses - 2023. 

30   For example, construction represents 11% of EU GDP, but accounts only for 1% of intra-EU services trade. Hourly labour 

productivity in construction amounts to some EUR 35 per hour, 30% less than in manufacturing. 

31   Regulated Profession Database. 
32   Measuring Prevalence and Labour Market Impacts of Occupational Regulation in the EU. 
33  

Idem. 

6 

 
 
 
commonly hired by companies as external service providers, such as accountants, architects, 
civil engineers and lawyers, the degree of restrictiveness varies greatly, with some Member 
States imposing no restrictions while others heavily restrict the possibility for foreign nationals 
to exercise the profession34. 

Where a Member State regulates a profession, citizens from other  Member States are 
required  to  undergo  a  procedure  to  have  their  professional  qualification  recognised. 
Thanks  to  the  processes  established  under  the  Professional  Qualifications  Directive35,  over 
90% of the almost 1 million recognition requests obtained a positive result36. Yet, citizens face 
practical  problems  when  attempting  to  get  their  professional  qualifications  recognised37.  A 
persistent  challenge  is  also  the  slow  and  inefficient  recognition  of  qualifications  of  third 
country nationals, which blocks mobility, contributes to overqualification and limits integration 
in the EU labour market. The Commission is working on possible solutions to speed up and 
simplify the system of recognition of professional qualifications. 

While declarations of the posting of workers can be justified to protect their rights, they 
constitute a significant administrative barrier to the temporary cross-border provision of 
services.  The  Commission  is  working  with  Member  State  authorities  in  the  Single  Market 
Enforcement  Taskforce  to  ensure  justified  and  proportionate  declaration  obligations.  The 
Commission has further proposed a Regulation to establish a common voluntary digital portal 
to  simplify  the  declaration  of  the  posting  of  workers,  connected  to  the  Internal  Market 
Information System (IMI)38. This would allow companies to make posting declarations in one 
place  for  all  EU  countries  using  the  public  interface  and  reduce  administrative  burdens  for 
companies and national authorities while also protecting workers' rights.  

The postal sector faces challenges due to the structural decline in letter mail activity and 
rising unit costs putting pressure on the cost of the universal service. The postal services 
sector is vital to the economy and to the Single Market, contributing to 0.8% of the EU’s GDP 
and employing 1.65 million people. New market entrants, especially e-commerce giants, are 
disrupting competition in the parcel delivery space. According to a recent study39, the sector 
faces challenges like increasing regulatory fragmentation and diverging quality levels. 

1.4   Cross-border movement of goods on the Single Market 

The  New  Legislative  Framework  (NLF)  has  improved  consistency  in  the  EU  product 
legislation but faces challenges. Covering products such as batteries, machinery and personal 
protective equipment40, the NLF underpins approximately 80% of industrial production and 
74% of intra-EU manufacturing. However, the 2022 evaluation of the NLF revealed pressing 
issues,  including  potential  foreign  influence,  illegal  practices  and  gaps  in  addressing 
digitalisation  and  circular  economy.  Addressing  these  challenges  is  essential  to  ensure 
coherence and reduce costs for economic operators and authorities. 

34   European  Commission,  Single  Market  Scoreboard,  “Barriers  to  accessing  professional  services  markets”;  EU 

restrictiveness indicator (EURI) database. 

35   Professional Qualifications Directive. 
36   Regulated Profession Database. 
37   Although  automatic  recognition  procedures  based  on  harmonised  minimum  training  requirements  or  on  professional 
experience apply for specific professions and sectors, their scope in practice is too limited and procedures too often remain 
complex and slow. 

38  Commission Proposal of 13 November 2024 establishing a single digital declaration portal. 
39  
40   Batteries:  Regulation  (EU)  2023/1542;  machinery:  Regulation  (EU)  2023/1230;  personal  protective  equipment: 

Internal Market, Industry, Entrepreneurship and SMEs - Postal Services. 

Regulation (EU) 2016/425.  

7 

 
 
 
The free movement of goods is undermined when products fail to meet requirements for 
health, safety and sustainability. The EU framework for market surveillance aims to counter 
this and concerns all non-food products covered by harmonisation legislation. Those products 
represent  about  two  thirds  of  intra-EU  trade  in  goods.  The  Commission  supports  and 
coordinates the activities of national authorities that check the compliance of products placed 
on  the  EU  market  and  finances  36  ongoing  joint  enforcement  actions  in  different  product 
sectors  covered  by  Union  harmonisation  legislation.  In  2024,  enforcement  authorities 
registered more than 36 916 investigations on non-food products and took measures in more 
than 23 389 cases to protect consumers and ensure a level-playing field for businesses.  

New trends in international e-commerce and supply chain re-configurations put pressure 
on  customs  controls,  market  surveillance,  and  consumer  protection  authorities.  The 
number of e-commerce parcels imported into the EU rose from 1.1 billion in 2022 to 2.2 billion 
in 2023 and is expected to reach 4 billion in 2024. In 2023, approximately 152 million fake 
items  were  detained  at  the  EU  border  and  in  the  Single  Market,  representing  a  significant 
increase from 86 million in 202241. Significant steps have been taken to address the challenge 
of  non-compliant  goods  reaching  the  Single  Market,  including  through  online  sales.  This 
includes  the  implementation  of  the  Market  Surveillance  Regulation42  supported  by  the  EU 
Product  Compliance  Network,  adoption  of  the  General  Product  Safety  Regulation43  to 
strengthen the rules on product safety and proposals for a reform of the EU Customs Union to 
control product imports more effectively. In addition, the Commission is taking action under 
the Digital Services Act.  

Territorial Supply Constraints in retail and wholesale fragment the Single Market, limit 
consumer  choice  and  contribute  to  significant  price  differences  across  the  EU44.  These 
constraints are imposed by large brand manufacturers to make it very difficult or impossible 
for retailers to buy products in one Member State and resell them in another. While competition 
law is an effective tool to penalise such practices45, many, however, fall outside its scope46. To 
identify solutions to this issue, the Commission launched a fact-finding exercise with Member 
States in SMET and will initiate a dialogue with the relevant industry stakeholders (retailers 
and wholesalers, manufacturers, consumers).  

Harmonised  technical  standards  promote  the  free  movement  of  goods  by  ensuring 
products meet safety, quality, and performance requirements across Member States. The 
CE marking identifies products comply with EU harmonised product legislation, allowing them 
to  be  sold  throughout  Europe.  Standards  reduce  barriers  to  trade,  ensure  interoperability  of 
products  and  enhance  the  competitiveness  of  European  businesses.  The  standardisation 
framework sometimes lacks speed and agility, in particular for new value chains for the green 
and digital transitions. It is of utmost importance to encourage fast delivery of standards and 
participation  of  EU  industry  in  work  on  standardisation  requests  in  areas  key  for  the  EU´s 

41   This poses particular challenges for product safety and market surveillance as among identified dangerous products in the 
EU  around  ¾  are  coming  from outside  the  EU  and not  all  consumer  products  are  subject  to  a  requirement to have a 
responsible person in the EU that can be reached to take corrective action. This has a negative effect on the level-playing 
field in the EU. 

42   Regulation (EU) 2019/1020. 
43   Regulation (EU) 2023/988. 
44   An independent study carried out for the European Commission in 2020 estimated that if TSCs were removed, consumers 

could save up to EUR 14.1 billion per year on their purchases of certain products. 

45   On 23 May 2024 the Commission fined Mondelez EUR 337.5 million for hindering the cross-border trade of chocolate, 
biscuits and coffee products. Previously, in 2019, the Commission had fined AB InBev EUR 200 million for restricting 
cross-border sales of beer.  

46   EU competition law applies only when the territorial supply constraints are included in anti-competitive agreements or 

carried out unilaterally by a dominant operator. 

8 

 
 
 
competitiveness. Such priority areas are set yearly, via Annual Union Work Programme for 
European  Standardisation47.  The  Commission  is  currently  assessing  the  legal  framework  on 
European standardisation to determine further action. 

The  evaluation  of  the  Textile  Labelling  Regulation  shows  a  proliferation  of  labelling 
requirements.  This  increases  the  complexity  of  information  provided  to  customers  and 
partitions the Single Market. It also concludes48 that the existing regulatory framework at the 
European level does not cover recycling related information and non-physical labels, i.e. digital 
labelling.  

1.5  Regulatory burden in the Single Market 

Businesses perceive the regulatory burden in Europe as too heavy, with 32% of EU firms 
identifying regulations as a “major obstacle” to their investment activity. An additional 
34% of EU companies see regulation as a minor obstacle, meaning that in total two thirds of 
companies consider being hindered from investing by excessive regulation49. In comparison, 
only  21%  of  companies  in  the  US  flag  “business  regulations”  as  a  major  impediment  to 
investment.  Compared  to  last  year,  perceptions  of  EU  businesses  about  the  burden  of 
government regulation have been broadly stable, with a small improvement from 3.4 in 2019 
to 3.9 in 202350, albeit still too burdensome (see KPI 4).  

41%  of  companies  consider  increased  regulatory  burden  to  be  the  main  risk  factor 
negatively impacting the EU’s attractiveness as a location for foreign direct investment 
(FDI)51. This can partly explain the significant drop in the EU’s share of annual global FDI 
flows from 36% (2019) to 4% (2023)52. The regulatory burden is particularly cumbersome for 
SMEs. 28% of EU SMEs report that more than 10% of their staff are employed to assess and 
comply with regulatory requirements and standards53. For instance, permitting procedures for 
new  or  modernised  manufacturing  facilities,  can  be  time-consuming,  costly  and  entail  the 
interaction with a multitude of public administrations. Further areas repeatedly brought up by 
companies  as  particularly  burdensome  are  posting  of  workers,  corporate  sustainability 
reporting and chemicals legislation. 

1.6  Digital tools for the Single Market 

information  and 
Economic  operators  report  difficulties  related 
accomplishing  administrative  formalities  online.  According  to  recent  surveys54,  key 
problems  include  difficulty  to  access  information  on  rules  and  requirements  and  overly 
complex administrative procedures. To address this issue, digital tools can facilitate access and 
reduce administrative burden. For example, the Single Digital Gateway is an EU eGovernment 
initiative that already serves as a one-stop-shop for citizens and businesses who want to work, 
study  or  do  business  in  another  EU  country.  Its  scope  has  gradually  expanded  to  include 

to  accessing 

47   Annual Union Work Programme for European Standardisation for 2024. 
48   Review of Regulation (EU) No 1007/2011. E.g. “Furthermore, new fibres are being developed, with growing complexity 
and speeds, and new recycling technologies are fast becoming available, requiring better fibre identification”, “digital 
labelling technologies are now readily available and affordable”. 

49   EIB, Investment Barriers in the EU. 
50   On a scale from 1 to 7 where 1=extremely complex, and 7=extremely easy. 
51   Ernst & Young, Europe Attractiveness Survey 2024. 
52   European Commission – Single Market Scoreboard; UNCTAD. 
53   European Investment Bank, EIB Investment Survey 2024. 
54   See for example 2024 Eurochambres Single Market Survey, Overcoming obstacles, developing solutions. 

9 

 
 
 
additional areas and legislative initiatives55. Yet, significant progress is still needed, notably 
for making procedures accessible to cross-border users. 

Fragmented  cooperation  among  Member  State  authorities  and  the  European 
Commission can undermine the effective implementation of EU law. The Internal Market 
Information System (IMI) plays an important role in facilitating cooperation and fast exchanges 
between over 12 000 public authorities across Europe. Last year, IMI incorporated the Database 
of  Regulated  Professions.  Additional  uses  of  IMI,  such  as  the  proposed  establishment  of  a 
single digital declaration portal for the posting of workers, could further reduce administrative 
burden. 

Inconsistent  adoption  of  electronic  invoicing  further  complicates  administrative 
processes  for  businesses,  particularly  in  public  procurement  processes.  The  eInvoicing 
Directive for public procurement56 mandates all contracting authorities in Europe to receive 
and process  eInvoices  compliant with  the standard. The percentage of European enterprises 
sending eInvoices increased from 10.3% in 2013 to 32.2% in 2020. 

The  lack  of  comprehensive  and  accessible  product  lifecycle  information  hampers 
transparency  and  sustainability  efforts.  The  Digital  Product  Passport  (DPP),  established 
under the Ecodesign for Sustainable Products Regulation, in force since July 2024, will, once 
created  and  operational,  provide  comprehensive  information  about  a  product’s  lifecycle, 
including compliance documentation, safety instructions, and guidance on product disposal. 

Finally, public sector interoperability enables administrations to cooperate and deliver 
public  services  across  borders,  sectoral  and  organisational  boundaries.  Cross-border 
interoperability can save businesses between EUR 5.7 and EUR 19.2 billion57 annually. 

1.7  SMEs 

The EU’s SMEs (99.8% of enterprises) are at the core of the EU’s economic fabric, yet 
the  economic  environment  remains  challenging  for  them.  As  the  2024  GROW  SME 
performance review shows, SME value added in real terms declined by 1.6% in 2023 and a 
further decline of 1.0% is estimated for 2024. Compared to large companies, SME productivity 
has shown a trend in the wrong direction: in  2008, SMEs were about 68% as productive as 
large enterprises, but in 2024 this figure had fallen to 60%58.  

SMEs remain the engine of growth and innovation in Europe. Most EU scale-ups with fast 
growth  and  high  productivity  are  SMEs59.  Micro-SMEs  with  less  than  10  employees  have 
created nearly 4 million jobs in the last three years, and in 11 out of 14 industrial ecosystems, 
job growth in SMEs has outpaced growth in large enterprises in 202360. 

Four  main  challenges  are  holding  SME  back:  regulatory  obstacles  or  administrative 
burden,  payment  delays,  access  to  finance,  and  skills61.  35%  of  SMEs  see  complex 

55  The scope has been recently expanded to cover the Regulation on European data governance, the Regulation on short-
term accommodation rentals, the Net Zero Industry Act, and the Critical Raw Materials Act. There are ongoing proposals 
to include the Directive for a European Cross-Border Associations framework, the Directive on driving licences and the 
Directive on substantiation and communication of explicit environmental claim. 

Impact Assessmentregarding the Interoperable Europe Act. 

56   Directive 2014/55/EU. 
57  
58   SME performance review. 
59   OECD, Helping SMEs scale up. 
60   European Commission, SME Performance Review 2024. 
61   SMEs  reported  the  following  as  their  most  pressing  issues  (the  survey  allowed  them  to  mention  several):  regulatory 
obstacles or administrative burden (55%), payment delays (35%), lack of liquidity and access to finance (21%), and skills 
including managerial skills (17%). Source: Eurobarometer 486, SME Relief Package. 

10 

 
 
 
administrative  or  legal  procedures  as  a  key  obstacle  to  implementing  resource-efficiency 
measures62, while access to skills is seen as the most important problem for 29% of SMEs63. 
In addition, the payment situation in Europe keeps worsening: actual payment times in B2B 
transactions have risen from 52 days in 2022 to 62 days in 2024. Lack of dynamism in the SME 
segment  is  a  result  of  slower  overall  growth  in  the  economy,  but  also  an  indication  that 
upscaling has become more challenging and that economies of scale from the Single Market 
can be further unlocked.  

1.8  Possible enlargement and integration of candidate countries in the Single 

Market 

Economic integration of candidate countries into the EU Single Market is a key priority 
for the Commission64. It facilitates trade and investment flows, ultimately driving economic 
growth both in the EU and in the candidate countries. The Commission continues to support 
this integration by monitoring candidates’ progress in aligning their legislation with EU laws 
and assisting their political and economic reforms. Integration of further economies into the 
Single Market is expected to positively affect key sectors such as raw materials, machinery, 
and tourism. 

Initiatives to strengthen ties with Ukraine and Moldova include regulatory integration of 
selected industrial sectors. The EU’s role as a key trading partner for both countries has grown 
steadily since 2022, now accounting for more than 50% of their overall trade. A yearly dialogue 
on industrial cooperation is organised with Ukraine; in March 2024 the Ukrainian government 
presented the Ukraine Plan65, a list of reforms and investments that would bring the country 
closer to the EU and the Single Market. Under possible Agreements on Conformity Assessment 
and  Acceptance  of  Industrial  Products  (”ACAA”),  the  Commission  strengthens  the 
administrative capacities of candidate countries to help them implement EU law on industrial 
goods. The aim is to ensure the gradual integration of the candidate countries into the EU Single 
Market and economic value chains.  

Fostering  economic  development  in  the  EU’s  neighbourhood  can  also  benefit  the  EU 
itself, by offering trading opportunities. The Western Balkans Growth Plan66 offers a gradual 
integration into the EU’s Single Market for goods and services and deeper connections to EU 
supply chains. The creation of a common regional market for the Western Balkans aligned with 
EU rules, could cause the region’s economies to double over the next decade. 

62   Flash Eurobarometer 549 on SMEs, resource efficiency, and green markets. 
63   2023 Survey on Access to Finance for Enterprises (SAFE). 
64   European Commission, Pre-enlargement reforms and policy reviews.  
65   Council of the European Union, Ukraine Plan. 
66   European Commission, Growth Plan for the Western Balkans, adopted on 8 November 2023. 

11 

 
 
 
 
 
 
SECTION 2 – Closing the innovation gap  

2.1  Research and innovation  

KPI 
KPI 5: R&D 
expenditure  
KPI 6: Patent 
applications  

KPI 7: Venture 
capital investment  

What it measures 

Total private and public expenditure in 
research and development as share of GDP. 
Patent applications per million inhabitants  

Target 
>3% by 
2030  

Venture capital investment (share of GDP) 

Latest EU value 

2.22% (2023) 
2.21% (2022) 
152.8 (2023) 
151.8 (2022) 

0.05% (2023) 
0.09% (2022) 

Research  and  Development  (R&D)  expenditure  and  the  generation  of  Intellectual 
Property (IP) are important metrics for the innovation capacity of the EU economy. In 
today’s  knowledge  economy,  IP  is  critical  to  commercial  success  and  is  a  signal  of  firms’ 
innovativeness. Start-ups are ten times more likely to obtain early-stage venture capital if they 
have  registered  patents  or  trademarks.  Also,  IP  rights  are  associated  with  a  200%  higher 
likelihood  of  successful  exit67.  Moreover,  intangible  assets  make  up  90%  of  S&P  500 
companies’ market value68. 

R&D spending has grown only very slowly over the past years to 2.2% of GDP in 2023 
compared to 2.1% in 201569. This value remains below the EU’s target of devoting 3% of GDP 
to R&D. Moreover, R&D spending remains below peers, with South Korea (5.2%), the US 
(3.6%), Japan (3.4%), and China (2.6%) staying ahead of the EU70 (KPI 5).  

Europe’s share of global patent applications declined from 30% to 17% between 2000 
and 2021, although remaining stable in absolute terms71 (KPI 6). EU companies, especially 
SMEs, underutilise the possibility of formally protecting their IP, such as patents, trademarks, 
and  designs.  Only  9%  of  SMEs  own  registered  IP,  compared  to  more  than  55%  of  large 
companies.  

While the EU's technological base is more diversified than that of other major economies, 
it is disproportionally more specialised in less complex technologies than its counterparts. 
This  hints  to  a  certain  mid-tech  trap  that  hinders  the  EU’s  ability  to  enter  and  grow  new 
technology intensive sectors, undermining future growth potential. Looking at the global top 
50 R&D investors per sectors in 2023 presented in the 2024 Industrial R&D Scoreboard, EU 
companies  were  leading  in  the  automotive  sector  (61%  share  of  total,  US  18%,  China  5%, 
Japan  15%)  while  in  other  tech  intensive  sectors  EU  investors  were  lagging  behind:  health 
sector (EU 14% versus US 51%, Japan 4%); ICT hardware (EU 8% versus US 55%, China 
15%); ICT software (EU 4% versus US 82%, China 10%, Japan 4%)72. EU innovation output 
has improved slightly (8%) over the last ten years, but remains lower than the US, UK and 
Japan, with China catching up quickly with a 28% increase in the same period73. 

67   European Union Intellectual Property Office, “Patents, trade marks and startup finance”. 
68   Sun, Review of the Importance of Technology Company Valuation and Commonly Used Methods, volume 189, p. 30. 
69   Eurostat, R&D expenditure. 
70   Note: Values from global peers are from 2021: World Bank, Research and development expenditure (% of GDP) | Data. 
71   European Commission – DG RTD, Science, Research and Innovation Performance of the EU 2024, p. 83. 
72   European Commission – DGs RTD & JRC, The EU Industrial R&D Investment Scoreboard. 
73   European Commission, Tracking country innovation performance: The Innovation Output Indicator 2023. 

12 

 
 
 
 
 
 
 
 
Companies and universities face difficulties in initial deployment and commercialisation 
of  their  research.  For  example,  only  about  one  third  of  patented  inventions  registered  by 
European  universities  are  commercially  exploited74.  This  is  generally  attributed  to  weak 
business-academia collaboration links, inconsistent IP management rules, and siloed academic 
careers  without  sufficient  incentives  for  commercialisation  and  entrepreneurship.  On  the 
business side, companies face numerous challenges when seeking to commercialise their IP 
protected innovation, such as a fragmented IP governance landscape and lack of private capital.  

Venture capital investment has declined from already low levels: from 0.09% of GDP in 
2022 to 0.05% in 2023 (see KPI 7 and Figure 3). Many innovative, fast-growing companies 
depend on risk capital in the form of venture investments for their expansion. The EU venture 
capital market (measured as share of venture capital investment of GDP) is still estimated to 
remain 10 times smaller than that of the US and 7 times smaller than that of China. Therefore, 
many highly innovative European companies are constrained by limited access to capital, often 
leading them to seek funding abroad or even relocate to more favourable funding environments 
like the US. For instance, in advanced manufacturing industries, from 2017-2023 almost 90% 
of the venture capital value went into either US or Chinese firms (47% and 39%, respectively), 
while only 4% of venture capital raised in that industry globally went to firms located in the 
EU75. 

research 

efforts.  For 

Figure  3:  Venture  capital  investment  as  a 
share of GDP in 2023 

The  EU  budget  has  an  array  of 
programmes  that  function  as  important 
levers for public and private investments 
and 
instance, 
InvestEU  has  already  unlocked  EUR  218 
billion  in  investment  for  a  more  innovative 
and  competitive  EU.  Horizon  Europe  is 
providing  EUR  93.5  billion  of  funding  for 
research and innovation during in 2021-2027 
and the Innovation Fund supports innovative 
low-carbon  technologies  (see  Section  3.2). 
While  sizeable  funding  opportunities  are 
available in the EU budget, EU spending is 
spread  over  too  many  programmes,  adding 
that  hampers 
complexity  and 
counteracts the strength through size sought by pooling resources to fund important projects at 
EU level76. 

Sources: Invest Europe; Eurostat; OECD; Statista 

rigidity 

The Strategic Technologies for Europe Platform (STEP) was set up in 2024 to steer EU 
funding  priority  projects,  technologies  and  sectors.  It  boosts  investment  and  increases 
support  for  the  development  and  manufacturing  in  Europe  of  innovative  and  strategic 
technologies. STEP raises and steers funding across 11 EU programmes for digital technologies 
and deep-tech innovation, clean and resource-efficient technologies and biotechnologies. The 
Commission has already published some 30 STEP calls for proposals totalling more than EUR 
8.5 billion and Member States have redirected more than EUR 6 billion towards STEP projects.  

74   Former Prime Minister Draghi, “The future of European competitiveness – A competitiveness strategy for Europe”, Part 

B, p. 244. 

75   European Commission, Strategic Insights into the EU’s Advanced Manufacturing Industry, Report (2024). 
76   Former Prime Minister Draghi, “The future of European competitiveness – A competitiveness strategy for Europe”. 

13 

 
 
 
 
2.2  Digitalisation  

KPI 
KPI 8: Digital 
intensity in 
SMEs77 

KPI 9: Digital 
technologies 
adoption by 
companies 

What it measures 

Share of EU companies with at least a 
basic level of digital intensity. This 
means using at least four of twelve 
selected digital technologies (such as AI 
technology; having e-commerce sales 
account for at least 1% of total turnover; 
etc.) as defined in the Digital Decade 
policy programme. 
Share of European companies that have 
taken up cloud computing services, data 
analytics and/or Artificial Intelligence. 
Target set in the Digital Decade policy 
programme. 

Target 
90% by 
2030  

Latest EU value 

57.7% (2023) 
54.8% (2021) 

75% by 
2030  

Cloud computing services: 
38.9% (2023)  
34.0% (2021) 

Data analytics: 33.2% (2023)  
Big data: 14.2% (2020)78 

Artificial intelligence:  
8.0% (2023) 
7.6% (2021) 

The EU is lagging behind its competitors in the digital domains. For instance, it is home to 
only 263 unicorn companies, compared to 1539 in the USA and 387 in China. The EU remains 
in  a  competitive  position  in  fields  such  as  advanced  manufacturing  and  mobile  network 
equipment but has failed to keep up with the overall pace of global competitors in both the 
hardware and the software segments of the information and communication technology (ICT) 
sector. While the EU share of the global ICT market has halved over the past decade (to 10.8%), 
the US share has increased by a third (to 38%)79. Moreover, the EU knowledge base for the 
development  of  digital  technologies  is  largely  located  outside  of  the  Union,  with  extra-EU 
patent citations accounting for about nearly 70% of digital patent applications80. 

The digital intensity of SMEs and the adoption of digital technologies by companies is not 
yet increasing fast enough. In 2023, 57.7% of EU SMEs had at least a basic level of digital 
intensity, which represents an increase as compared to 2 years ago, albeit not sufficiently rapid 
to stay on track towards the target of a 90% basic digital intensity by 2030. (KPI 8). The share 
of EU companies with more than ten employees that have adopted key digital technologies has 
also grown, with 33.2% of companies using data analytics, 38.9% using cloud and 8% having 
implemented AI in their business81, but also these numbers fall short of following the trajectory 
needed to reach the target of a 75% uptake in 2030 (KPI 9). 

The  roll-out  of  advanced  manufacturing  in  traditional  industries,  such  as  additive 
manufacturing and robotics, is still too slow. Robot density in the EU stands at 22 units per 
1000  employees,  which  is  below  the  US  (29),  and  significantly  behind  South  Korea  (101), 
China (47) and Japan (42)82. 

The  most  disruptive  and  promising  tech  advancements  will  revolve  around  artificial 
intelligence (AI), where Europe is currently lagging behind.  The EU has so far failed to 
leverage the power that the Single Market can bring to enable large-scale access to free-flowing 

77   European Commission, Digital Decade reports. 
78   Due to a change in definition, the part of KPI 16 measuring data analytics in 2023 and big data in 2020 are not fully 

comparable. 

79  Statista, ICT global market share worldwide 2023. 
80   European Commission, DG JRC, The geography of EU green and digital inventions and their knowledge sources, 2023. 
81   Eurostat, Digitalisation in Europe – 2024 edition. 
82  

International Federation of Robotics, Global Robot Density in Factories Doubled in Seven Years. 

14 

 
 
 
 
data and strong scaleup prospects, both of which are prerequisites for a successful tech industry. 
Businesses  are  launching  major  investments  into  AI,  with  the  lion’s  share  being  in  US 
companies. The sector’s value is expected to grow more than tenfold until 203083. To improve 
conditions  for  tech  development,  the  EU  is  expanding  its  world-leading  high-performance 
computing infrastructure to create “AI Factories” serving as one-stop-shops for companies to 
train and develop AI models. 

A greater deployment of digital technologies in manufacturing can substantially increase 
productivity across the economy. Deploying technology is just as important as developing it 
and  represents  a  low-hanging  fruit  compared  to  the  more  challenging  endeavour  of  rapidly 
catching up on AI development with US and China who are already way ahead. Incentivising 
the rollout of advanced digital technologies in industry, services and the public sector will be 
key to boosting the economy at large.  

2.3  Skills and education 

KPI  

What it measures 

Target  

Latest EU value  

KPI 10: Employment rate    The share of working-age people in 

78% by 2030  

employment. 

KPI 11: Adult participation 
in education and training  

Share of adult population participating 
in education and/or training at least 
once a year. 

60% by 2030  

75.3% (2023) 
74.6% (2022) 

39.5% (2022) 
37.4% (2016) 

KPI 12: ICT specialists  

ICT specialists as a share of total 
employment 

KPI 13: PISA score  

15-year-olds’ performance in the 
OECD’s PISA tests covering maths, 
reading and science. High scores 
indicate better performance. 

20 million ICT 
specialists, ca 10% 
of total 
employment  

9.8 million, 4.8% of 
employment (2023) 

9.4 million, 4.6% of 
employment (2022)  

Maths: 474 (2022)  
Maths: 492 (2018)  

Reading: 475 (2022)  
Reading: 488 (2018)  

Science: 484 (2022)  
Science: 488 (2018) 

While the EU employment rate is steadily moving towards the target of 78% in 203084 
(KPI  10),  educational  outcomes  in  secondary  education  are  falling  behind.  The  EU 
employment rate exceeded 75% in 2023, up from 72% in 201885. This performance is broadly 
in line with the US, but below trends in Japan and the UK86. At the same time, Europe is facing 
a problem in equipping young people with basic skills. The average PISA scores tracking 15-
year  olds’  performance  in  mathematics,  reading  and  science  have  fallen  in  all  disciplines, 
continuing  the  downward  trend  noted  in  previous  surveys.  EU  students  underperform 
compared to their peers in the UK, the US, Japan and China87 (KPI 13). Increased female work 
force  participation  helps  address  skill  shortages  but  the  gender  employment  gap  has  only 
marginally narrowed in recent years. 

83   European Parliament Research Service, AI investment: EU and global indicators. 
84   Target laid down in the European Pillar of Social Rights Action Plan. 
85   Eurostat, Employment and activity by sex and age - annual data. 
86   OECD, Labour force participation rate. 
87   OECD, PISA 2022 Results. 

15 

 
 
 
 
 
The rapidly evolving character of the labour market, coupled with demographic change, 
highlights the need to equip Europeans with new skills. Yet, over 70% of businesses report 
that the lack of right skills hampers their investments and nearly four out of five SMEs report 
difficulties in finding workers with the right skills88. The problem is amplified by  Europe’s 
working-age  population  being  projected  to  decline  on  average  by  about  one  million  people 
every year, from today until 205089, in the absence of offsetting shifts. While ICT skills are in 
high and increasing demand, only 56% of the population is estimated to have basic or above 
basic digital skills90, pointing to the need for up- and re-skilling of the workforce. 45% of SMEs 
report that skills shortages hinder their ability to adopt or effectively use digital technologies91. 
The  number  of  ICT  specialists  has  reached  10  million  in  2023,  representing  4.8%  of  total 
employment92 and is progressing towards the goal of having ICT specialists make up 10% of 
the workforce by 2030 (KPI 12). Still, only 39.5% of the adult population take part in education 
or training (KPI 11), indicating the need to promote lifelong learning. The European Social 
Fund contributes to the reskilling and upskilling of the workforce with a budget of EUR 142.7 
billion for the period 2021-2027. In response to skills gaps in critically important sectors, such 
as  in  net-zero  technologies,  cybersecurity  and  construction,  tailor-made  industry  academies 
have been launched in collaboration with the business community. 

SECTION 3 – Decarbonisation of industry and investment 

3.1  Access to private capital and investment 

KPI 
KPI 14: Private investment  Private investment (share of GDP) 

What it measures 

KPI 15: Private savings 
invested in bonds, shares, 
investment funds and 
similar 

Volumes of households’ savings in bonds; listed shares; 
and investment, insurance and pension funds, relative to 
the volumes of households’ cash holdings and bank 
deposits. It gives an idea of the share of savings directly 
feeding into investment in the real economy, easing 
companies’ access to finance. 

Latest EU value 

18.5% (2023) 
19.3% (2022) 
43% (2023) 
42% (2022) 

There are vast investment needs for businesses to master the green and digital transitions. 
They  require  investments  in  the  generation,  transmission,  and  storage  of  electricity, 
electrification of industrial processes, energy efficiency, computing capacity, automation and 
many other areas. They similarly require investment in the semiconductor industry and in the 
extraction, processing, and recycling of many critical raw materials.  

Private investment has, at around 19% of GDP, been broadly stable in recent years (KPI 
14). Overall levels are slightly ahead of those in the US and well ahead of those in the UK93. 
The  specific  analysis  on  the  evolution  of  venture  capital  and  the  related  KPI,  have  been 
presented under Section 2.  

88   European Commission, Digital skills and jobs. 
89   Employment and social developments in Europe 2023 - Publications Office of the EU. 
90   Eurostat, Digitalisation in Europe 2024 edition. 
91   European Year of Skills - Skills shortages, recruitment and retention strategies in small and medium-sized enterprises. 

Report (September 2023) | European Commission (europa.eu). 

92   Eurostat, ICT specialists in employment. 
93   European Commission, AMECO database. 

16 

 
 
 
 
 
Compared to other advanced economies, a much smaller share of EU private savings goes 
directly  into  investment  in  companies  and  riskier  forms  of  investment.  Productive 
investment  is  low  and  private  saving  is  high94.  The  share  of  EU  household  savings  going 
towards  company  bonds,  listed  shares,  investment  funds  and  similar  is  relatively  low, 
corresponding  to  43%  of  the  levels  of  savings  in  traditional  bank  accounts  (KPI  15)95.  The 
corresponding level in the UK is 55% and in the US 72% (see Figure 4)96. High participation 
rates in financial markets help companies to diversify their funding. Strong capital markets are 
important to ease companies access to finance and unlock finance for scale-ups97. 

in 

than 

Figure  4:  Household  savings  invested  in 
bonds, shares, investment funds and similar. 

Significant amounts of EU savers’ money 
are  either  tied  up  in  bank  accounts  or 
invested  abroad.  Although  the  volume  of 
private  savings  in  the  EU  was  nearly  65% 
greater 
in  2022,  EU 
the  US 
households  have  considerably  lower  total 
wealth than their US peers98, largely because 
of  the  lower  returns  they  generally  receive 
from financial markets. While the net wealth 
of US households grew by around 150% over 
the past 15 years, the corresponding growth 
was  only  55%  in  the  Euro  area99.  This  is 
largely  due  to  a  lack  of  capacity  in  the  EU 
financial  system  to  stimulate  high-yielding 
investments,  which  can  be  explained  by  a 
combination of lack of fiscal incentives and 
cumbersome  tax  reporting  requirements  in 
many  Member  States,  along  with  a  public 
perception of the overall business climate not 
being  sufficiently  promising,  lowering  the 
confidence  in  the  prospects  of  return  on 
investment.  Of  the  EU  household  savings  invested  in  company  bonds,  listed  shares  and 
investment funds, a significant share, approximately EUR 300 billion annually, is invested not 
in  the  EU,  but  abroad100,  and  mainly  in  the  US.  EU  foreign  direct  investment  into  the  US 
simultaneously amounted to EUR 3.27 trillion in 2023101. 

Note:  Volumes  of  household  savings  in  company 
bonds;  listed  shares;  and  investment,  insurance  and 
pension funds, relative to the volumes of households’ 
cash holdings and bank deposits. 

Source: European Commission, DG FISMA 

New  bank  loans  to  SMEs  have  decreased  since  the  COVID-19  pandemic,  putting  new 
investments at risk. Although a higher share of financing to companies channelled through 
corporate bonds, listed shares, venture capital and investment funds would be desirable, bank 
financing  remains  crucial  to  fostering  growth  and  competitiveness  of  the  bulk  of  European 
SMEs who use traditional bank loans to finance investments (counting for 57% of their total 
finance,  see  Figure  5). However,  SME  lending,  which  spiked  following  the  on-set  of  the 

94   Productive investment is here defined as gross fixed capital formation minus residential investment.  
95   Note: Part of these savings will contribute to corporate investment activity via the portfolio allocation made by banks and 

other financial intermediaries. 

96   Note: The Commission’s set of indicators on the Capital Markets Union provide detailed indicators that help track capital 

markets’ developments. List of indicators to monitor progress towards the CMU objectives. 

97   European Investment Bank (EIB), The scale-up gap. 
98   Former Prime Minister Draghi, “The future of European competitiveness – A competitiveness strategy for Europe”, part 

B, page 1. 

99   ECB Distributional Wealth Accounts; US Federal Reserve Economic Data. 
100  Former Prime Minister Letta, “Much more than a Market”, page 11. 
101   Statista, Foreign direct investment from Europe into the United States from 2000 to 2023. 

17 

 
 
 
 
COVID pandemic due to the massive public intervention schemes, is contracting significantly, 
as the public support is withdrawn. Current levels of new bank finance have fallen below pre- 
pandemic levels (Figure 6), which can partly also be attributed to the increase in interest rates 
seen up until 2024. 

Figure  5: Type of finance used in  2023  by 
SMEs (share of total)  

Figure 6: New bank lending to non-financial 
corporations  

Source:  The  Survey  on  the  Access  to  Finance  of 
Enterprises (SAFE), December 20231  

Source: European Central Bank, MFI Interest Rate 
Statistics2 

3.2  Public investment and infrastructure 

KPI 
KPI 16: Public investment 

What it measures 

Public investment (share of GDP) 

Latest EU value 

3.49% (2023) 
3.24% (2022) 

Public investment has slowly trended up over the past years reaching 3.5% of GDP in 
2024,  up  from  3.1%  of  GDP  in  2018  (KPI  16).  While  the  EU  level  equals  the  US  public 
spending that also stands at 3.5% of GDP, the funding landscape in the EU is fragmented and 
complex, with most funding carried out at national level. For example, in the case of R&D, 
93% of public funds invested annually are provided through national programmes102. 

At the EU level, the cohesion policy funds, the Recovery and Resilience Facility (RRF) 
and other instruments help finance the green and digital transition103. Since 2021, the RRF 
has paid out EUR 306 billion104, thorough implementation of national plans is needed to ensure 
timely  and  comprehensive  disbursement  of  remaining  amounts.  The  Cohesion  Policy  funds 
have disbursed EUR 249 billion in the period 2021 - 2024. The Innovation Fund will provide 
an estimated EUR 40 billion in the current decade for development and deployment of low-
carbon  technologies,  notably  in  energy  intensive  industries,  power  generation  and  energy 
storage.  

Despite relevant sources of public financing, such as InvestEU and STEP, a funding gap 
remains  for  scaling  up  manufacturing  capacities,  as  less  than  5%  of  the  EU  clean  tech 
funding supports net-zero manufacturing at the highest technology readiness levels (8-9)105. 

102   Former Prime Minister Draghi, “The future of European competitiveness – A competitiveness strategy for Europe”, Part 

B, p.236. 

103   Overall, in 2023, the EU budget and NextGenerationEU dedicated 38% of their resources to climate-relevant measures, 

and 19% of their resources to the EU’s digital priorities. 
104   European Commission, Recovery and Resilience Scoreboard. 
105   Technology readiness levels  are a measurement of the maturity of a technology, with 1 being the least mature (basic 

research) and 9 being the most mature (ready for launch/operations).  

18 

 
 
 
 
 
The EU State aid framework has enabled targeted public investment by Member States 
while preventing undue distortions of competition and maintaining a level playing field. 
In 2022, Member States spent almost EUR 228 billion, corresponding to 1.4% of their GDP, 
on  State  aid  (including  crisis  measures).  This  year’s  Single  Market  and  Competitiveness 
Scoreboard  –  published  alongside  this  report  –  includes  a  new  indicator  that  compares  the 
concentration  of State  aid  with  the  concentration  of  GDP  in  the  EU.  It  finds  State  aid  has 
become more unevenly allocated across the Member States over the past 10 years106. 

Important  Projects  of  Common  European  Interest  (IPCEIs)  are  a  key  tool  for 
coordinated  public  and  private  investments  in  the  EU  to  support  breakthrough 
innovation  and  infrastructure  projects  in  critical  technologies  areas.  IPCEIs  are  a  step 
towards increased cross-country coordination in industrial policies within the EU, an evolution 
that needs to go further. To date, ten integrated IPCEIs have been approved, for a value of more 
than  EUR  37  billion  in  national  public  support,  unlocking  EUR  66  billion  of  private 
investments  (see  Figure  7).  There  is  a  need  to  make  the  IPCEI  design  and  review  process 
simpler and faster to get strategic projects off the ground quickly. The Joint European Forum 
on IPCEI, launched in October 2023, helps to address these issues by identifying strategic areas 
for future IPCEIs and improving their design and implementation.  

Figure 7: Overview of IPCEIs and the unlocked investment volumes (by autumn 2024) 

Source: Approved IPCEIs - European Commission 

Public procurement can serve as a strategic tool to channel public investment towards 
shaping  the  future  of  the  European  economy  in  support  of  objectives,  such  as  green 
transition and resilience of the EU economy, but its implementation can be challenging. 
The public procurement directives ensure common rules across the Single Market and each 
year over 250 000 public authorities in the EU spend around 14% of GDP (EUR 2 000 billion 
in 2022) on services, works and supplies. While existing rules allow for social, sustainability 
and  resilience  criteria,  their  uptake  has  been  limited,  including  due  to  implementation 
challenges. 

106   European Commission, Single Market Scoreboard. 

19 

 
 
 
 
 
3.3  Energy 

KPI 
KPI 17: Electricity prices 
for non-household 
consumers  

KPI 18: Electrification 

KPI 19: Share of energy 
from renewable sources  

What it measures 

Target 

Electricity prices for non-household 
consumers (EU ID price band, large 
commercial consumers) with recoverable 
taxes and levies excluded. 
Electricity as a share of the total energy 
consumption.107 
Renewable energy generation as a share 
of the overall energy consumption. 

45% in 
2030 

Latest EU value 
EUR 0.16 per kWh 
(2024) 
EUR 0.20 per kWh 
(2023) 
21.3% (2022) 
20.8% (2021) 
24.5% (2023) 
23% (2022) 

Recent  years’  energy  price  spikes  have  taken  a  toll  on  European  energy-intensive 
industries, such as steel, cement, glass, paper and chemicals manufacturers. Production has 
declined  steeply  –  in  some  segments  by  more  than  10%  compared  to  before  2021108.  For 
instance,  in  aluminium  manufacturing,  energy  costs  typically  amount  to  half  of  the  total 
production costs109. Energy costs significantly affect the ability of EU businesses to compete 
on international markets.  

EU electricity prices have fallen from their peak but are still near  twice as high as the 
historical  levels  and  significantly  higher  than  in  competing  regions  (see  KPI  17).  EU 
companies face electricity prices that are on average 3 times those in the US and natural gas 
prices 4-5 times higher110. There are also substantial price differences within the EU111. The 
price hikes have had direct negative impact on investor confidence and resulted in withdrawn 
foreign direct investments and halted expansion projects. 33% of businesses say that volatile 
and  too  high  energy  prices  are  the  main  factors  negatively  affecting  EU  attractiveness  as  a 
business location112. 

Figure 8: Electricity prices for companies in the EU and other advanced economies. 

Source: Eurostat, US Energy Information Administration (EIA), the UK Department for Energy Security and Net 
Zero (DESNZ) and the International Energy Agency (IEA)113. 

107   Electricity as a share of gross final energy consumption. 
108   Eurostat; European Commission –DG GROW. 
109   International Aluminium Institute. 
110   Eurostat; US Energy Information Administration (EIA); the UK Department for Energy Security and Net Zero (DESNZ); 

and the International Energy Agency (IEA). 

111   See the national numbers on KPI 17 in Annex 1 of this report. 
112   Ernst & Young, EY Europe Attractiveness Survey June 2024. 
113  EU IC band = medium-sized industrial consumers with annual consumption of between 500 MWh and 2 000 MWh.  
EU ID band = large-sized industrial consumers with annual consumption of between 2 000 MWh and 20 000 MWh. 
20 

 
 
 
 
 
 
  
 
Current price levels also hamper the electrification of the EU economy. Electricity as a 
share of the energy mix has been stable at around 20% since 2000, and has not yet taken off at 
large scale (KPI 18)114. This can be partly explained by a persistently small price differential 
between gas and electricity, which is not providing sufficient economic incentives to switch to 
electricity,  despite  the  higher  energy  efficiency  of  electric  systems.  This  has  discouraged 
transition  by  industry  and  households.  It  is  however  expected  that  the  electricity  share  will 
successively increase given increasingly strict emission rules, heavier carbon pricing115, and 
revised energy taxation rules116, which will drive the electrification of industry, incentivise the 
use of heat pumps for heating and accelerate the uptake of electric vehicles. 

The EU economy still relies extensively on fossil fuels, making up around two thirds of 
the energy mix. The share of renewables is increasing and makes up 24.5% (KPI 19) and 
nuclear  energy  provides  12%  of  the  EU  energy  mix117.  The  impact  assessment  of  the 
Communication on Europe’s 2040 climate target shows that these clean energy sources could 
meet 75% of the energy needs in the EU by 2040118. The current reliance on imported fossil 
fuels exposes industry to risks of supply disruption and price volatility, while a stronger future 
reliance  on  decarbonised  energy  sources  can  increase  affordability  and  limit  industry’s 
vulnerability.  

Europe has a strong track record in clean tech and energy innovation119, but does not yet 
provide sufficient framework conditions for bringing to the market innovative products 
and allowing companies to scale up, which in turn can help increase energy efficiency and 
boost electricity supply. The global market for key mass-manufactured clean technologies is 
set to triple by 2035 to an annual value of around EUR 1.9 trillion120, offering vast opportunities 
for EU companies to tap into. The fast implementation of the Net-Zero Industry Act (NZIA) 
will  help  the  EU  to  build  a  strong  domestic  manufacturing  capacity  for  those  technologies, 
crucial for meeting society’s needs for cheaper and cleaner energy.  

3.4  Circular Economy 

KPI 
KPI 20: Circular 
material use rate  

What it measures 

Target 

Latest EU value 

Material recovered and fed back into 
the economy, as a share of the overall 
use of material. 

23.4% by 2030  

11.8% (2023) 
11.5% (2022) 

Europe  is  slowly  progressing  towards  a  more  circular  economy121.  Since  2000,  the  EU 
economy’s  circularity,  measured  as  the  circular  material  use  rate,  increased  from  8.2%  to 
11.8% in 2023122 (KPI 20), entailing lower consumption of primary materials, less waste and 

114   Energy statistical datasheets for the EU countries. 
115   EU Emissions Trading System. 
116   The revised EU Energy Taxation Directive currently under negotiation. 
117   Eurostat, Energy statistics. 
118   European  Commission,  Commission  Staff  Working  Document  accompanying  the  Communication  on  Europe’s  2040 

climate target. 

119   European Commission – DG RTD, Patent statistics show that EU companies generate 29% of patents in clean energy and 

24% of patents in energy efficiency. 

120   International Energy Agency, Energy Technology Perspectives (2024). Report mentioned USD 2 trillion, converted end 

of 2024. 

121   European Court of Auditors, Special report: Circular economy – Slow transition by member states despite EU action. 
122   Eurostat, Material flows and resource productivity. 

21 

 
 
 
 
reduced foreign dependency. The EU's material footprint, measuring raw materials extraction 
for EU consumption, amounted to 14.8 tonnes per capita in 2022123. 

Several factors are impeding the transition to a circular economy. Economic constraints 
can discourage the adoption of circular business models since they often entail higher upfront 
costs  and  given  that  secondary  raw  materials  typically  are  more  expensive  than  virgin 
materials. Paired with innovation risks and uncertainty about returns on investment, along with 
the difficulty of scaling up and replicating solutions in a fragmented market, the business case 
for circularity is not obvious. For example, divergencies between the regulatory frameworks in 
EU Member States, notably on end-of-waste criteria, make it difficult to freely move waste 
inside  the  Single  Market.  This  prevents  development  of  enhanced  supply  chains  and 
discourages upscaling innovative recycling facilities. The degree of valorisation of industrial 
waste  or  by-products  (industrial  symbiosis)  varies  among  Member  States  and  between 
industries,  with  cheap  landfilling  and  lack  of  predictability  of  supply  of  waste/by-products 
representing obstacles for circular models. There is also further scope to improve repairability 
of goods so as to prolong their life span and limit resource and energy consumption associated 
with production of new goods. Additionally, there is a great untapped potential in expanding 
the use of bio-based materials, notably wood-based construction material and consumer goods, 
from homegrown European forests. This would limit the use of finite resources and allow more 
buildings and goods to act as carbon sinks.  

The  Critical  Raw  Materials  Act  (CRMA)  and  the  Ecodesign  for  Sustainable  Products 
Regulation (ESPR) enhance conditions for circular business models. The CRMA requires 
EU recycling to cover 25% of the EU’s annual consumption of strategic raw materials by 2030 
and  streamlines  investments  in  recycling  facilities.  At  product  level,  the  ESPR  will  design 
specific  dedicated  circularity  criteria  for  specific  product  categories.  This  will  help  address 
market  fragmentation  deriving  from  diverging  national  rules  on  product  sustainability.  The 
Raw  Materials  Information  System124  supports  well-informed  policy  design  and  business 
decisions, with life cycle data on key materials. 

SECTION 4 – Increasing security and reducing dependencies  

4.1  Trade and strategic dependencies 

KPI 
KPI 21: Trade with the rest 
of the world as share of 
GDP 

What it measures 

Latest EU value 

The EU’s degree of economic 
integration with the rest of the world. 

14.8% for goods (2023) 
17.4% for goods (2022) 

KPI 22: Exports of goods 
and services as a share of 
worldwide imports  

The EU economy’s global weight and 
market share. 

7.4% for services (2023) 
7.8% for services (2022) 
20.4% for goods (2023) 
16.1% for goods (2022) 

31.9% for services (2023)  
33.5% for services (2022) 

International trade is key for the EU’s prosperity. It gives companies  the opportunity to 
expand their business at the global stage, creating jobs and revenue, fostering efficiency and 
promoting  innovation.  It  also  contributes  to  European  economic  security  by  securing  and 

123   European Environment Agency, Europe’s Material Footprint. 
127  European Commission, Raw Materials Information System. 
22 

 
 
 
 
 
diversifying supply chains, also to import critical inputs for European companies. The openness 
of the EU economy and the economic importance of trade with the rest of the world has doubled 
over  the  past  30  years,  with  extra-EU  trade  in  goods  growing  from  8% of  GDP  in  1995  to 
14.8% in 2023 and extra-EU trade in services growing from 3% of GDP in 1995 to 7.4% in 
2023 (KPI 21)125. Compared to 2022, trade as share of GDP dropped, in particular for goods. 
Mirroring trends for intra-EU trade described in Section 1.1., extra-EU trade remains above 
2021  and  pre-pandemic  levels,  an  important  part  of  the  2022  hike  relates  to  (energy)  price 
effects. Figure 9 illustrates.  

The EU draws economic and political strength from its position as a global trading power 
– being number one in the world for exports of services, and number two in the world for 
exports  of  goods.  Over  time,  the  EU  has  consistently  been  the  economy  with  the  greatest 
volume of exports of services, steadily growing to a peak at 36% of the  rest of the world’s 
service imports in 2021, dropping to just below 32% in 2023. Goods exports as share of the 
rest of the world’s imports has seen an inversed trend over the last decade with slowly declining 
EU numbers apart from a jump upwards from 16% in 2022 to 20% in 2023 (Figure 10, KPI 
22)126.  

Figure 9: EU trade with the rest of the world 
as share of EU GDP. 

Figure 10: Exports of goods and services as 
a share of the rest of the world’s imports. 

Sources: UN Industrial Development Organisation, Competitive Industrial Performance database; World Bank 
databases; Eurostat; European Commission estimates. 

These trends are emerging as part of broader changes in the global trade landscape. While 
there is no evidence of a structural deglobalisation, the importance of global trade relative to 
GDP has stayed broadly flat since 2013. This has been attributed partly to various shocks such 
as the COVID-19 pandemic and trade tensions between the US and China. Over recent years, 
economic actors worldwide have put in place policies to improve their economic security and 
resilience (see Annex 2 on resilience measures of selected global players), leading to a global 
reconfiguration  of  supply  chains.  The  EU’s  supply  chains  are  dynamic  networks  with  a 
significant capacity for adaptation to this new global landscape. Recent analysis suggests that 
there  is  evidence  of  an  ongoing  reallocation  of  EU  imports  away  from  non-agreement 

125   Eurostat, International trade in goods (ext_go); International trade in services (ext_ser). 
126   UN Industrial Development Organisation, Competitive Industrial Performance database; World Bank databases; Eurostat; 

European Commission estimates. 

23 

 
 
 
 
 
partners127  towards  the  EU  (“reshoring”),  neighbouring  agreement  partners  (“nearshoring”) 
and non-neighbouring agreement partners (“partnershoring”), with varying intensities128. This 
has led overall to a higher diversification in EU imports.  

Trade  agreements  and  strategic  partnerships  foster  access  to  markets  abroad  and 
generate  new  investment  opportunities.  This  is  crucial  in  view  of  both  the  limitations  in 
domestic production of certain goods, and the potential for EU companies to break new ground 
abroad. The Commission has removed 140 barriers to EU exports in more than 40 countries 
over  the  past  five  years,  unlocking  an  additional  EUR  6.2  billion  of  EU  exports  in  2023 
alone129. 

At the same time, there are significant risks arising from increased geopolitical tensions, 
unfair  trade  practices  and  strategic  dependencies,  to  which  an  open  economy  like  the 
EU’s is exposed. Evidence of increased Chinese exports at very competitive prices, in many 
cases  facilitated  by  state  subsidies,  might  cause  serious  damage  to  segments  of  EU 
manufacturing.  That  is  why  the  EU  adopted  tariffs  for  electric  vehicles  from  China130.  In 
addition,  the  EU  has  put  in  place  a  new  Foreign  Subsidies  Regulation  and  bolstered  the 
framework  for  screening  FDI  in  strategic  areas.  Annex  2  provides  insights  into  resilience 
measures of selected global players131.  

Analysis of the EU economy’s external vulnerability reveals that the EU is more exposed 
to external trade vulnerabilities than China, but less exposed than the US. For all industrial 
products, the external vulnerability (EXVI) index132 puts the EU at 0.22, China at 0.13 and US 
at 0.28. In strategic supply chains such as semiconductors, net-zero technologies and critical 
raw materials, the EU faces the greatest vulnerability in raw materials (0.28), when compared 
to  semiconductors  (0.22)  and  net-zero  technologies  (0.18).  Comparing  to  its  main  trading 
partners, the EU appears more vulnerable to external factors across all three specific supply 
chains relative to China. However, when compared to the US, the EU is more vulnerable only 
in the semiconductor supply chain. Over the past decade, the EU has seen a slight decline in 
the vulnerability of critical raw materials, while vulnerabilities in the semiconductor and net-
zero technology supply chains remained relatively stable, as detailed in Part II of Annex 1. 

EU firms have reported difficulties in accessing certain commodities with access to raw 
materials such as steel, copper, fossil fuels, lithium, etc being reported as major obstacles by 
37% of companies133. Other major obstacles include access to semiconductors and microchips 
(23%),  and  other  components,  semi-finished  products  and  equipment  (27%)134.  To  increase 
access to critical raw materials, the EU has signed 14 raw material partnerships, with further 

127   “Agreement  partners”  include  third  countries  with  whom  the  EU  shares  trade  agreements  (whether  in  place  or 
provisionally applied), raw material partnerships, or that are signatories of the 2022 Joint Statement of Cooperation on 
Global Supply Chains. The remaining third countries are considered “non-agreement partners” (including e.g. Russia and 
China).  

128   R. Arjona, W. Connell, C. Herghelegiu (2024): “Supply Chain Tectonics: Empirics on how the EU is plotting its path 

through global trade fragmentation”, European Commission, Single Market Economics Papers 28. 

129   European Commission, Implementation and Enforcement of EU Trade Policy. 
130   EU tariffs on imports of battery electric vehicles from China. 
131   This annex provides a global context in the areas of trade and supply chains, outlining resilience measures taken by the 

US, the UK, China, Japan, India, Canada, Australia, South Korea, Singapore and Taiwan. 

132   Analysis  carried  out  through  the  European  Commission’s  new  External  Vulnerability  Index  (EXVI),  a  composite 
indicator designed to assess external vulnerability across products, sectors, supply chains, and the overall economy. It 
quantifies  the  economy’s  vulnerability  to  external  shocks  with  scores  ranging  from  0  (low  vulnerability)  to  1  (high 
vulnerability).  The  index  is  built  on  two  pillars:  the  first  focuses  on  risks  from  foreign  dependencies,  examining  the 
concentration of trade flows and reliance on foreign markets, while the second addresses risks from a weak global market 
position, evaluating competitive strengths and weaknesses through price differences and relative comparative advantages. 

133   European Investment Bank, EIB Investment Survey. 
134   European Investment Bank, https://www.eib.org/en/publications/20240179-navigating-supply-chain-disruptions. 

24 

 
 
 
ones in preparation135. With the Global Gateway136, the EU continues to strengthen trade links 
with growth centres and securing supply chains in critical areas. 

Conclusion 

This  report  illustrates  the  strengths  and  weaknesses  of  the  EU  economy  and  its 
competitiveness. It shows that the progress of integration in the Single Market continues but 
has slowed down. While the conformity deficit has improved, too much fragmentation remains 
for goods and services, and the administrative burden is too high. Europe risks falling behind 
in the area of innovation. Private and public R&D spending remains below peers. Businesses 
struggle  to  scale  up,  the  role  of  venture  capital  remains  far  smaller  than  in  competing 
economies.  Employment  rates  are  increasing,  but  there  remains  a  lack  of  skilled  labour. 
Digitalisation is progressing, as shown by the adoption of digital technologies, but not yet at 
sufficient  pace.  Similarly,  the  decarbonisation  of  industry  and  energy  systems  as  well  as 
circularity  advances  but  should  accelerate.  High  energy  prices  weigh  on  Europe’s 
competitiveness. Public and private investments are not always finding their ways into the most 
promising technologies and sectors. Europe benefits from being a highly open economy, but 
strategic dependencies merit careful monitoring. 

There is much potential to strengthen Europe’s long-term competitiveness and to fully 
unlock the strength and potential of the EU’s Single Market, by decisively addressing the 
outlined challenges and barriers. The difficulties companies face to scale up, innovate, and 
increase  productivity  must  be  tackled.  As  many  of  the  competitiveness  drivers  are  closely 
interlinked,  fostering  Europe’s  competitiveness  and  prosperity  will  require  a  coherent  and 
strategic approach, especially in the challenging geopolitical context. 

The  Annual  Single  Market  and  Competitiveness  Report  will  inform  the  political 
discussion  on  competitiveness  and  prosperity,  and  feed  into  the  next  steps  for  policy 
action.  This  report  provides  a  shared  diagnostic  and  points  towards  policy  priorities  for 
industrial policies, in particular for the forthcoming Clean Industrial Deal, and for the Single 
Market,  in  particular  for  the  forthcoming  Single  Market  Strategy.  In  conjunction,  the 
Competitiveness  Compass  outlines  the  framework  of  upcoming  policy  action  to  strengthen 
European competitiveness and growth. Moreover, the present report will inform discussions in 
the European Council, the Competitiveness Council and the European Parliament, as well as 
with Member States. Similarly, it can serve as basis for close collaboration and dialogue with 
stakeholders,  including  businesses.  The  report  will  feed  the  discussions  in  the  European 
Semester  and  towards  the  Competitiveness  Coordination  Tool  as  well  as  towards  the 
Competitiveness  Fund  and  the  next  Multiannual  Financial  Framework.  In  sum,  this  report 
enables a close monitoring of Europe’s competitiveness, such that the different European actors 
can track progress and identify policy priorities on an annual basis. 

135 European Commission, Raw materials diplomacy. 
136 European Commission, Global Gateway. 

25