The European Union’s manufacturing sector is poised for a second consecutive year of growth in 2026, a testament to resilience in the face of persistent challenges. Despite energy-intensive industries grappling with ongoing headwinds, the sector is expected to expand, driven by strategic adaptations and strategic investments. This growth trajectory is not without its complexities, however, and the construction industry, particularly in the realm of building materials, stands to gain from these developments.
In response to U.S. tariffs, EU exporters have demonstrated remarkable agility, with tariff pass-through to U.S. import prices nearing 100%. This means American companies and consumers are bearing the brunt of direct tariff costs. European manufacturers have also begun shifting some production and sourcing to local U.S. factories, a strategic move that not only mitigates tariff impacts but also strengthens their foothold in the lucrative U.S. market. Simultaneously, EU companies are diversifying their export markets, a prudent strategy that spreads risk and fosters growth.
The growth engine of EU manufacturing is increasingly powered by high-tech sub-sectors. Industries such as defense, artificial intelligence (AI), and electrification are at the forefront, benefiting from substantial investments. Tech-driven sectors like biotech, aerospace, and pharmaceuticals are also contributing significantly to this upward trajectory. The EU’s Recovery and Resilience Fund (RRF) continues to play a pivotal role, stimulating investments that propel the manufacturing sector forward.
For manufacturers of building materials, the shift in the EU construction sector from stagnation to growth in 2026 is a welcome development. The residential construction segment is particularly promising, with a steady increase in the issuance of new permits. Infrastructure output is set to receive a boost from the final tranche of grants and loans from the EU’s RRF, which still holds over €200 billion in non-committed funds. Additionally, Germany’s €500 billion investment plan for infrastructure and climate is expected to yield its first projects by the end of 2026, further bolstering the construction sector.
The anticipated modest growth in manufacturing and construction is a positive signal for the staffing industry. A gradual improvement in demand for temporary workers is expected in 2026, reflecting the sector’s recovery and expansion. However, the competitive landscape for manufacturing remains volatile. Renewed trade tensions could swiftly erode competitiveness, while the positive impacts of diversifying trade, such as Free Trade Agreements with Mercosur and India, will take time to materialize.
The implementation of EU policies, including the Carbon Border Adjustment Mechanism (CBAM) and measures on non-EU steel imports, adds another layer of complexity. The potential for last-minute changes in these policies introduces uncertainty, influencing the competitive environment significantly. As the EU navigates these challenges, the construction industry must remain adaptable, leveraging technological advancements and sustainable practices to thrive in this evolving landscape.