The rise of the Iberian Peninsula: The landscape of European industrial investment is being restructured.

The Great Geographic Shift of European Industrial Investment

According to the latest McKinsey Global Institute (MGI) report, *Catalyzing Competitiveness: Where Investment Happens and Why*, Portugal and Spain are emerging as Europe's most favored destinations for industrial investment. This trend is no coincidence; it is an inevitable result of global capital reassessing the balance among energy costs, productivity, and policy environments.

Net Production Investment: Migration from Germany to Iberia

In 2024, Portugal's net production investment reached 4.6% of GDP, Spain exceeded 2%, while Germany's figure stood at only 0.2%. This gap indicates a sharp contraction in investment momentum for Germany, Europe's traditional industrial engine. Productive investment is a core indicator of economic competitiveness, and its flow directly foretells the future layout of production capacity.

The McKinsey report notes that an increasing number of companies are no longer selecting sites based on historical industrial centers or geographic advantages, but instead comprehensively consider operational costs, productivity, and project delivery speed. This explains why energy-intensive industrial projects are accelerating their shift toward the Iberian Peninsula and Nordic countries—regions rich in low-cost renewable energy.

Energy Costs and Policy Efficiency: Core Sources of Advantage

The appeal of Portugal and Spain rests on two pillars: first, abundant solar and wind resources that give them significant electricity price competitiveness within the EU; second, relatively simplified administrative procedures and faster project implementation timelines. In contrast, Europe's overall R&D costs are about 300% higher than major global investment destinations, primarily due to lengthy approval processes and new product launch cycles.

MGI emphasizes that Europe faces a structural investment gap of approximately €800 billion per year, threatening long-term growth potential and international competitiveness. Without closing this gap, Europe's weight in the global industrial landscape will continue to diminish.

Global Competitive Landscape: The US and China Go Separate Ways

While the Iberian Peninsula captures attention, the global industrial investment race is accelerating on two fronts. The United States is aggressively expanding its domestic manufacturing capacity through policies like the Inflation Reduction Act to reduce reliance on overseas supply chains; China, meanwhile, is expanding capacity even faster, with an investment growth rate roughly three times that of the US and EU combined.

However, cost competition remains a weakness: the average cost of manufacturing in Europe or the US is at least 50% higher than in economies currently absorbing the most global investment. This means that even if the Iberian Peninsula holds a relative advantage, Europe remains at a disadvantage if global pricing benchmarks remain unchanged.

Reform Path: Productivity at the Core

MGI recommends a combination of measures for Europe to turn the tide: accelerate automation and AI adoption, simplify regulatory and administrative procedures, expand affordable clean energy supply, compress product development cycles, and concentrate resources on strategic specialized fields such as semiconductors, biotechnology, and AI infrastructure.

The report estimates that if productivity could be increased by about 30%, while simultaneously reducing equipment, energy, and material costs and speeding up project execution, Europe's current cost disadvantage could be narrowed by 30% to 80%.## Long-term perspective: Interaction between industrial geography and monetary policy

The regional diffusion of industrial investment in Europe is not just a market behavior; it will also affect the effectiveness of central bank monetary policy. As the concentration of production capacity decreases, the transmission efficiency of interest rate changes may diverge across different regions. The Iberian Peninsula's ability to attract investment will also improve its balance of payments and strengthen stability within the eurozone.

Investors and policymakers should pay attention to whether Europe is forming a new industrial geographic core—a multipolar pattern consisting of Iberia, Nordic countries, and parts of Central and Eastern Europe. This concerns not only short-term competitiveness but also determines Europe's position in the future global value chain.

(This article is based on the MGI report "Catalyzing Competitiveness: Where Investment Happens and Why" and a report from The Portugal News, by Kate Sreenarong, June 30, 2026)