The European Commission has just released its Competitiveness Compass, a roadmap for EU action over the next five years which lists what needs to be done to enable the European economy to flourish.

It identifies the EU's chief problem as the lack of productivity growth. This is due to several factors, including a lack of innovation, high energy prices, a high regulatory burden, an increasingly unlevel global playing field, and increasing dependency on strategic inputs and highly concentrated supply chains.

The Compass warns that if Europe does not increase its productivity, it could end up being stuck on a low-growth path – resulting in lower wages, less social assistance and generally fewer opportunities for everyone. It points out that the EU's freedom, security and autonomy will depend more than ever on its ability to innovate, compete and grow.

The economy does not exist in a void though: there are other issues at stake. The EU wants to ensure that its economy is fully decarbonised by 2050 and that process is not exactly easy. To be aligned with the goal of a competitive Europe, the transition to a decarbonised economy must support competitiveness.

The Draghi Report identified three imperatives to boost competitiveness: closing the innovation gap, a joint roadmap for decarbonisation and competitiveness, and reducing excessive dependencies and increasing security. The Compass sets out ways and means to deliver on them. One of these initiatives is the Clean Industrial Deal which aims to make the EU an attractive location for manufacturing, including energy intensive industries, and promote clean tech and new circular business models.

The Compass recognises the role of the circular economy: it is primarily relevant to the second pillar on decarbonisation and competitiveness, although recycling as a way to reduce the EU's dependencies on single or highly concentrated suppliers across key strategic sectors is mentioned under the third pillar (Reducing excessive dependencies and increasing security). The Compass points out that resource efficiency and boosting circular use of materials helps decarbonisation, competitiveness and economic security. The European remanufacturing market is important for the economy now (EUR 31 billion) and expected to grow significantly (EUR 100 billion by 2030), creating half a million new jobs.

That will entail creating a single market for waste, secondary and reusable materials, increasing efficiency and expanding recycling. The Circular Economy Act should be ready by the last quarter of 2026 and will catalyse investment in recycling capacity and encourage EU industry to substitute virgin materials and reduce the landfilling and incineration of used raw materials. It will be flanked by eco-design requirements for important product groups.

All in all, the Commission's watchword for the next five years is competitiveness – and the circular economy is a driver for it.