Whereas the world noticed a modest development in overseas direct funding (FDI) in 2024, Europe was a much less favoured vacation spot for capital.
The variety of tasks within the area fell to its lowest stage in 9 years, in keeping with the 2025 European Attractiveness Survey by EY, drawing solutions from 500 worldwide enterprise leaders between January and March 2025.
Over one-third of them, 37%, stated that they postponed, cancelled or scaled again European funding plans in 2024, as a result of weak financial development, excessive vitality costs and geopolitical tensions.
“Companies world wide introduced 5,383 greenfield and enlargement tasks in 45 European nations, in contrast with 5,694 in 2023 — a year-on-year lower of 5%,” the report discovered.
Compared, FDI tasks in Europe declined by 4% year-on-year in 2023, and so they grew by 1% between 2021 and 2022.
Presently, the variety of overseas direct funding tasks is nineteen% decrease than its peak in 2017.
Although Europe as a complete was not the primary vacation spot for brand spanking new tasks in 2024, Luxembourg stood out as the highest nation amongst OECD members, with the very best worth of overseas direct investments. These got here to $133bn (€117bn) in 2024, in keeping with knowledge from the OECD. The US obtained the second-highest quantity, at $66bn (€58bn), adopted by Canada ($42bn, €37bn).
The place in Europe did FDI tumble probably the most?
The EY survey discovered that France, the UK and Germany stay the highest three locations in Europe, collectively accounting for roughly half of all FDI tasks within the area. Nevertheless, all three nations skilled double-digit declines final yr.
The variety of new tasks in France fell by 14%, primarily as a result of political uncertainty and excessive labour prices in 2024. That is even if it stays the main vacation spot for FDI funding, in keeping with the report. France can also be rising as a key hub for AI funding and stays a main location for worldwide vitality and agri-food corporations.
Although London stays probably the most engaging European metropolis for funding, the UK noticed a 13% decline in FDI final yr. This was partially as a result of low productiveness, difficult public funds and comparatively excessive vitality costs, stated EY.
Within the UK, the report added that the funding local weather was additionally shifting in the direction of fewer however higher-quality tasks, led by a robust rise in analysis and growth (R&D) funding schemes (+32%).
FDI in Germany, in the meantime, decreased by 17% in 2024, persevering with a gradual decline for the reason that pandemic. Funding in Germany in 2024 was primarily fuelled by enlargement on current tasks quite than so-called greenfield schemes.
Funding in Central, Japanese and Southern Europe surges
In response to the report, funding elevated throughout Central, Japanese and Southern Europe. Spain stood out with 15% extra tasks in 2024 than within the earlier yr, pushed by a robust financial efficiency, comparatively low vitality and labour prices, an ample provide of land, and the help of EU funds.
It pushed the nation to turn into the fourth-largest vacation spot for FDI in Europe.
When it comes to new tasks, different sturdy performers embody Denmark (+86%), Austria (+31%), Switzerland (+25%), Poland (+13%), Finland (+13%) and Italy (+5%), in keeping with EY.
The numerous surge in Denmark was brought on by a tripling of the variety of enterprise companies, gross sales and advertising and marketing tasks.
Poland additionally consolidated its place as an industrial and logistics hub, capitalising on its central location, price competitiveness and sizeable pool of expert expertise.
Which sectors have been most affected?
Amongst European FDI tasks, manufacturing investments slid by 9%, marking the bottom stage of latest manufacturing tasks since 2020.
New greenfield schemes, that are constructed from scratch, dropped by 20%. New services sometimes generate twice as many roles as expansions to already operational websites.
Workplace-based funding additionally declined, because the shift to distant work diminished demand for brand spanking new workplace house. Software program and IT companies — traditionally the biggest sector for FDI — noticed a 17% decline, partly as a result of tighter outsourcing budgets.
In complete, FDI-related job creation tumbled by 16% in 2024, stated EY.
Whereas most classes of FDI declined in 2024, R&D-related funding elevated, albeit from a comparatively low stage. This means that traders nonetheless take into account Europe a horny location for cutting-edge analysis throughout all sectors.
What are the expectations of enterprise leaders for the approaching years?
An instantaneous restoration in FDI is unlikely in Europe.
In response to the OECD, the worldwide outlook for 2025 stays unclear, as average worldwide GDP development is anticipated within the subsequent two years, constrained by rising commerce boundaries and shifting insurance policies.
Uncertainty is taking a toll on Europe’s future prospects, too. The lingering risk of excessive commerce tariffs on imports into the US provides to long-term worries about Europe’s competitiveness, feeding investor hesitancy.
Regardless of this, nearly all of the surveyed worldwide enterprise leaders imagine that Europe can appeal to funding in key sectors. These embody renewable vitality, semiconductors, prescribed drugs, AI and electrical automobiles (EVs).
“Whereas general funding has declined, there’s a vital alternative for Europe to double down on investments in rising sectors like renewable vitality, AI and electrical automobiles, which present actual promise,” Julie Linn Teigland, EY international vice chair, in control of alliances & ecosystems within the EMEIA area, stated. “It’s important that we adapt and innovate swiftly to safe a affluent future for Europe,” she added.
Solely 59% of companies intend to spend money on Europe inside the subsequent 12 months, down from 72% final yr. A bit of extra, 61%, suppose that Europe’s attractiveness will improve in the course of the subsequent three years.
Defence spending
Regardless of the gloomy funding local weather in Europe, the area’s prospects are nonetheless supported by optimistic financial indicators. Rates of interest are falling and wage development is outpacing inflation.
The boldness in Europe’s financial system can also be underpinned by Germany’s plans to spend €1 trillion on infrastructure and defence within the coming years, anticipated to be a driver of FDI.
Because the US turns into a extra unreliable navy companion, Europe should turn into extra self-sufficient, elevating its defence spending and bolstering home manufacturing.
The 2024 FDI knowledge confirmed that European investments in defence have been already gathering momentum. Key gamers embody French aerospace and defence big Thales, which opened a brand new meeting line in Belgium, and German defence group Rheinmetall, which is making ready a brand new artillery manufacturing facility in Lithuania.