The Hidden Economic Losses of Counterfeiting in the EU

Counterfeiting imposes substantial economic costs on the European Union, far exceeding the direct losses sustained by targeted industries. This study estimates the economy-wide impact of counterfeiting in five key product groups (clothing, cosmetics, toys, pharmaceuticals, and tobacco) by treating lost legitimate sales as reductions in final demand. Using a multi-regional input-output (MRIO) framework, the analysis traces how these losses spread through EU supply chains, reducing gross value added (GVA), employment, and household consumption. We estimate that counterfeiting reduced EU GVA by €67.9 billion and employment by about 1.3 million jobs in 2024. This loss is equivalent to roughly 0.4% of EU GDP or comparable in scale to Slovenia’s entire GDP (€67.9 billion against Slovenia's €67.4 billion). Critically, 72% of this damage occurs outside the targeted industries through supply-chain and income effects, with 37% of these losses spilling over to other Member States. Tobacco and pharmaceuticals account for the largest GVA impacts (€24.3 billion and €18.6 billion, respectively). Regarding the labor market, employment losses are most acute in the clothing sector (506,000 jobs), followed by pharmaceuticals (337,000 jobs) and tobacco (208,000 jobs), illustrating a severe impact of counterfeiting on both capital-intensive and labor-intensive sectors. Beyond this, counterfeiting serves as a primary revenue stream for organized crime groups, undermining EU GDP by eroding institutional trust and diverting capital into the shadow economy (European Union Intellectual Property Office, 2022). This societal burden is further exacerbated by dangerous fakes, such as toxic toys and falsified pharmaceuticals, which impose significant public health risks and externalized healthcare costs (OECD Numbeo, n.d), establishing a clear link between market informality and systemic criminality. Our regression analysis further confirms the underlying economic mechanism: when policy-driven costs raise the price of compliant products without affecting illicit alternatives, consumer demand shifts toward the shadow economy. Specifically, we find that each additional euro of excise duty per 1,000 cigarettes increases the illicit market share by 0.08 percentage points. While the lack of comparable cross-country data currently precludes a similar quantitative extension to other sectors or emerging nicotine products, such as e-cigarettes that are already highly exposed to illicit risks (Fraunhofer IIS, 2026), the cigarette case study remains a critical demonstration. It proves that misaligned taxation and regulatory frameworks act as fundamental catalysts for illicit market growth across all analyzed categories. Despite these data limitations, the evidence highlights a systemic need for policy calibration. Across all analyzed sectors, policies that calibrate compliance costs, import duties, and product standards, while providing differentiated treatment for legally marketed innovative goods, can narrow the price gap with counterfeit products and reduce incentives for consumers to shift towards illicit channels. Together, these results point to the need for coordinated, system-wide policy recalibration across the EU to ensure that regulatory objectives do not inadvertently compromise market formalization and economic security.