Foreign direct investment (FDI) into Europe declined in 2023, falling 4% compared with 2022, and has dropped to 11% lower than in 2019, just before the COVID-19 pandemic started.
That’s according to the annual EY European Attractiveness Survey 2024.
The survey said that France, the UK and Germany continue to attract the bulk of FDI and retain the top three spots, accounting for around half of total projects.
FDI projects decreased by 5% to 1,194 projects in France and by 12% in Germany to 733. The UK bucked the trend and moved ahead of Germany into second place with a 6% increase in the number of projects to 985.
“Despite hopes that FDI into Europe would bounce back post-pandemic, slow economic growth, spiraling inflation, soaring energy prices and a febrile geopolitical environment has caused the first downturn in European FDI since 2020,” said EY.
“Throughout 2023, businesses around the world announced 5,694 greenfield and expansion projects in 44 European countries, compared with 5,962 in 2022 – a year-on-year decrease of 4%, compared with 1% growth in 2022 and 5% growth in 2021.
“Investment is now 14% lower than its peak in 2017 and the total number of jobs created in Europe as a result of FDI fell 7% year on year to 319,923.”
Companies cited increased regulatory burden, volatile energy prices and political instability as the top three risks impacting investment decisions.
Europe has pioneered new regulatory initiatives on artificial intelligence (AI), sustainability and data protection and investors are worried these could stifle business growth.
The ongoing energy crisis, uncertainty in the run-up to the European elections and rising social tensions and political radicalism are also concerning investors.
Julie Linn Teigland, EY EMEIA Area Managing Partner, said: “Europe is in urgent need of foreign investment and this survey should serve as a wake-up call right across the continent. Policymakers must work together with businesses to create the conditions where investment can flourish and business thrives.
“Foreign investment builds the European economy by creating jobs, stimulating innovation and boosting exports.
“Despite the continued disappointing trajectory for investment in 2023, there are reasons to be optimistic about the longer term future. But urgent action must be taken now to help ensure Europe remains competitive in the face of increasingly stiff competition from the US and China.”
Business leaders surveyed see the increased “regulatory burden” as the biggest threat to Europe’s attractiveness over the next three years.
“Europe has pioneered new regulatory initiatives in areas including carbon disclosure, supply chain due diligence, data protection and the safe use of AI,” said EY.
“Investors are worried that the expanding regulatory framework will stifle European business growth and agility.
“Reflecting concerns about the energy crisis of the past two years, ‘energy prices and supply issues’ are considered the second biggest threat to Europe’s attractiveness, with ‘political instability’ in Europe ranked third.
“This is due to uncertainty in the run-up to the European elections and rising social tensions and political radicalism at local levels.”