Portugal and Spain emerge as Europe's industrial hotspots, McKinsey finds

And Portugal is singled out as one of Europe’s economic success stories.

The Iberian neighbours owe their standing to a combination of competitive energy prices and productive investment levels that outstrip those seen in Europe's larger economies.

The findings come from the McKinsey Global Institute (MGI) report, ‘Catalysing Competitiveness: Where Investment Happens and Why’, which paints a sobering picture of the continent's broader economic health.

Europe, the report finds, is grappling with an investment gap of roughly €800 billion annually - a shortfall that threatens to hold back growth and erode competitiveness over the long term.

Central to the report's argument is the idea that productive investment has overtaken older measures as the clearest signal of economic competitiveness.

Companies deciding where to locate operations are now weighing up costs, productivity and how quickly projects can be implemented, rather than leaning on historical ties or geographic convenience.

This shift plays directly to Portugal and Spain's strengths.

Both countries benefit from abundant renewable energy sources at relatively low prices, making them particularly attractive for industries that consume large amounts of electricity.

This comes soon after the two countries agreed to work more closely together to remove administrative obstacles and improve the business environment across their borders.

Portugal, in particular, is singled out in the report as one of Europe's standout stories of investment recovery since the eurozone debt crisis.

Net productive investment there reached 4.6% of GDP in 2024, while Spain's figure topped 2%.

Germany, by contrast, managed only around 0.2% of GDP over the same period - a stark illustration of how far the industrial landscape has shifted.

As a result, a number of energy-intensive industrial projects are now heading towards the Iberian Peninsula and Nordic countries, bypassing Europe's traditional manufacturing strongholds altogether.

Paul Stannard, chairman and founder of Portugal Pathways and the Portugal Investment Owners Club, said: “This report only goes to show how far Portugal has come.

“The economy is growing, being boosted in part by its Golden Visa programme which supports many of Portugal’s top sectors.

“This economic boost is creating new jobs and opportunities for people across the country.”

Looking beyond Europe, MGI notes a widening gap between the world's major economic powers.

Whereas Europe continues to underinvest, the United States is working to bolster its own industrial base and cut reliance on foreign suppliers, and China is expanding its manufacturing capacity roughly three times faster than the US and Europe combined.

The report also warns that manufacturing costs in Europe and the US typically run at least 50% higher than in the economies currently drawing the most investment, while the gap widens even further for research and development - reaching as much as 300% - largely due to slower processes and longer timelines for bringing new products to market.

MGI attributes much of Europe's competitiveness problem to high energy and raw material costs, along with inconsistent public investment support, which can differ by up to eightfold between regions.

To turn the tide, the institute recommends embracing automation and artificial intelligence to lift productivity, cutting red tape, securing affordable clean energy, speeding up product development, and doubling down on strategic sectors such as semiconductors, biotechnology and AI infrastructure.

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About Portugal Pathways

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