Radio frequency identification (RFID) technology is set to enjoy 'enormous' six-fold growth in Europe, from its current value of about €400m to more than €2.5bn in 2008.

According to the latest data from analyst firm Soreon Research, large retailers such as Tesco in the UK and Metro in Germany are driving adoption of the technology, which allows contact-free identification of tagged goods and pallets using radio waves.

The lion's share of the market is expected to be in the area of transponders, with current and future turnovers amounting to about 80 per cent of the total RFID market volume. The number of transponders will increase beyond the billion mark if used in a comprehensive way in the supply chain, Soreon predicted.

However, the analyst firm noted that a sharp decline in transponder prices will occur with the arrival of more economical materials, and cost savings from mass production.

But it will not just be pallets and cartons that are fitted with tags. From 2006, more and more individual products at Points of Sale will be covered, predicted Soreon.

Retail trade in Europe records a turnover of more than 260 billion individual products per year. Based on these figures Soreon assumes that, by 2008, about five per cent of these products will have an RFID tag in addition to, or instead of, a barcode.

The leading RFID market in Europe was found to be Germany, with an expected volume of nearly 600 million items, followed by France and the UK, each with an RFID market volume of nearly 500 million items.

"The opportunities in the RFID market in Europe are enormous but there are also risks which could deter, or even put a full stop to, the growth of this still very new market," said Soreon research director Steffen Binder in a statement.

"Data protection guidelines which are too stringent, and the absence of a worldwide standard for the radio frequencies employed, are the main hurdles that could jeopardise the development of the RFID markets in Europe."

Soreon recommends that companies should concentrate on forthcoming UHF-technology and adopt RFID standards such as EPCglobal, a worldwide initiative for a standardised Electronic Product Code, which is supposed to replace the barcode.