Industrial resilience amid cost pressures

May 2026 brought mixed signals across the seven components of the Industry Alarm Index. While energy prices and aluminium costs pushed higher, putting pressure on energy‑intensive sectors, cheaper natural gas and a surge in battery storage investments acted as counterweights. The index rose to 68.4 points, its highest level since September 2025, confirming that European industry is gradually recovering from the winter slump but still faces structural headwinds.

The increase of 2.3 points compared to April was driven mainly by improvements in the Investment Score (+4.1 pts) and the Supply Chain category (+3.2 pts). The Energy Score, although still high, was held back by rising wholesale electricity prices, which were only partially offset by a drop in TTF gas prices. The Risk Score remains the weakest link at 54 points, reflecting persistent geopolitical tensions, cyber threats, and the precarious state of gas storage levels ahead of next winter.

Below is a snapshot of the most significant monthly changes recorded by the Industry Alarm Index in May 2026.

The alarm cards above illustrate the dual nature of the current industrial environment. On one hand, energy costs remain a significant burden, especially for electro‑intensive sectors like aluminium, steel, and chemicals. On the other hand, the pace of new investment – particularly in renewables, storage, and digital infrastructure – is accelerating, signalling a structural shift towards a more resilient industrial base. The challenge for policymakers is to sustain this investment momentum while mitigating the near‑term cost disadvantages.

Industry Alarm Index. Last 12 months

The index bottomed out in December 2025 at 51.2 points, deep in the Uncertainty zone. That month was marked by an extreme winter cold spell, record electricity prices, heightened geopolitical tensions (especially in the Middle East and Eastern Europe), and disruptions in key supply chains. Since then, the index has recovered steadily, climbing above 60 points in February and reaching 68.4 in May – the highest level since September 2025.

The recovery has been driven by three main forces: first, a gradual easing of natural gas prices after the winter peak; second, a wave of public and private investment in clean energy and industrial modernisation (the Investment Score rose from 59 in December to 75 in May); and third, improving supply chain conditions as freight rates normalised and delivery times shortened. However, the Competitiveness and Risk scores have barely moved, indicating that Europe’s structural cost disadvantage vis‑à‑vis the US and Asia, as well as the fragile geopolitical environment, remain the biggest obstacles to a sustained improvement.

Seven categories and their weights in May 2026

The Industry Alarm Index is a weighted average of seven data categories. The Energy Score has the largest weight (25%), reflecting the crucial role of energy costs for European industrial competitiveness. Industry Activity (20%) – based on PMI, industrial production, and orders – is the second most important factor. The remaining five categories, with weights from 5% to 15%, capture structural, investment, and systemic risk dimensions.

Each category is itself a composite of several sub‑indicators, which are listed in the cards below. The scores are normalised to a 0–100 scale, where 0 represents the worst possible condition and 100 the best. The weights are reviewed quarterly to reflect changing economic realities; for example, the weight of the Risk Score was increased from 5% to 10% in early 2026 following the escalation of geopolitical tensions in the Red Sea and the eastern Mediterranean.

Profile and monthly changes

The radar chart below visualises the distribution of scores across all seven categories. There is a clear asymmetry between the strong investment and energy categories and the weaker competitiveness and risk scores. This profile is typical of an economy in transition: capital expenditure is rising, but the cost and structural benefits are not yet visible in day‑to‑day operations.

The Energy Score (72) is supported by relatively stable gas prices and a strong push for renewables, but is still dampened by high wholesale electricity prices in several major markets. The Investment Score (75) is the highest of all categories, driven by massive commitments to battery storage, offshore wind, and semiconductor fabrication plants in Germany, Poland, and France. In contrast, the Competitiveness Score (58) reflects the persistent gap in energy and labour costs between Europe and its main competitors. The Risk Score (54) remains under pressure from the war in Ukraine, tensions in the South China Sea, and the risk of cyberattacks on critical infrastructure.

The monthly change chart shows that the largest positive moves came from Investments (+4.1) and Supply Chain (+3.2), reflecting the accelerated approval of new projects and the easing of bottlenecks in global logistics. The only category that lost ground was Competitiveness (-1.0), as the strengthening of the euro against the dollar and rising labour costs in Central Europe eroded the relative cost position of European manufacturers. The Risk Score also improved slightly (+2), thanks to a temporary de‑escalation of tensions in the Middle East, but remains at a level that warrants close monitoring.

Industry Alarm Index by European country

The country‑level ranking is calculated using the same seven categories as the European index, but with data specific to each national market. Nordic countries dominate the top of the table, thanks to their abundant clean energy (hydropower, nuclear, and renewables), which translates into very low wholesale electricity prices and a high Energy Score. Denmark ranks first, combining low energy costs with a booming offshore wind industry and strong investment in energy storage and green hydrogen.

Poland, with a score of 59, is in the Uncertainty zone (41–60 points). The main factors holding back its performance are the still high share of coal in the generation mix (which raises CO₂ costs), a lower competitiveness score relative to Asia, and a higher geopolitical risk profile due to its proximity to conflict zones. On the positive side, Poland is seeing strong investment activity in defence, infrastructure, and renewable energy, which helped it gain 1.9 points in May – one of the largest monthly improvements in the ranking.

Looking at the country ranking, it is worth noting that the gap between the top and bottom countries has widened slightly over the past year. In May 2025, the difference between Denmark and Poland was about 20 points; now it is 23 points. This indicates that the energy transition and industrial policies are creating a two‑speed Europe, where countries with abundant renewable resources and strong innovation ecosystems pull ahead, while those heavily dependent on fossil fuels struggle to keep up. The EU’s Recovery and Resilience Facility and the Net‑Zero Industry Act are designed to narrow these gaps, but their impact will take years to materialise.

Europe vs the world. Cost competitiveness indicator

The Competitiveness category compares European industry with its main global rivals in terms of energy costs, gas prices, labour costs, and producer price inflation (PPI). Europe’s score of 58 in May 2026 reflects a persistent cost gap, particularly visible in energy‑intensive sectors such as aluminium, steel, fertilisers, and basic chemicals.

The United States continues to benefit from much cheaper natural gas and, consequently, lower industrial electricity prices. China retains its cost advantage through subsidised energy and low labour costs, though the latter are rising faster than in Europe. India is gaining ground as a location for light manufacturing and advanced services, while the United Arab Emirates and Saudi Arabia are cementing their positions in petrochemicals. Canada, with its hydropower‑rich mix and proximity to the US market, is an emerging threat to Europe in both energy‑intensive and high‑tech sectors.

To address this challenge, the European Commission has proposed a series of measures, including the reform of the electricity market design, the expansion of the Carbon Border Adjustment Mechanism (CBAM), and the creation of a European Sovereignty Fund to support strategic industries. However, these initiatives are still in the legislative phase and will not have an immediate effect on the cost differentials observed in May 2026. In the meantime, European manufacturers are increasingly adopting energy‑efficient technologies, investing in onsite renewables, and renegotiating long‑term power purchase agreements (PPAs) to mitigate the impact of volatile wholesale prices.