Investing in Europe is at a nine-year low: Is a rebound coming?

While nan world saw a humble maturation successful overseas nonstop finance (FDI) successful 2024, Europe was a little favoured destination for capital.

The number of projects successful nan region fell to its lowest level successful 9 years, according to nan 2025 European Attractiveness Survey by EY, drafting answers from 500 world business leaders betwixt January and March 2025. 

Over one-third of them, 37%, said that they postponed, cancelled aliases scaled backmost European finance plans successful 2024, owed to anemic economical growth, precocious power prices and geopolitical tensions.

“Businesses astir nan world announced 5,383 greenfield and description projects successful 45 European countries, compared pinch 5,694 successful 2023 — a year-on-year alteration of 5%,” nan study found.

In comparison, FDI projects successful Europe declined by 4% year-on-year successful 2023, and they grew by 1% betwixt 2021 and 2022.

Currently, nan number of overseas nonstop finance projects is 19% little than its highest successful 2017.

Even though Europe arsenic a full was not nan number 1 destination for caller projects successful 2024, Luxembourg stood retired arsenic nan apical state among OECD members, pinch nan highest worth of overseas nonstop investments. These came to $133bn (€117bn) successful 2024, according to information from nan OECD. The US received nan second-highest amount, astatine $66bn (€58bn), followed by Canada ($42bn, €37bn). 

Where successful Europe did FDI tumble nan most?

The EY study recovered that France, nan UK and Germany stay nan apical 3 destinations successful Europe, together accounting for astir half of each FDI projects successful nan region. However, each 3 countries knowledgeable double-digit declines past year. 

The number of caller projects successful France fell by 14%, chiefly owed to governmental uncertainty and precocious labour costs successful 2024. This is contempt nan truth that it remains nan starring destination for FDI investment, according to nan report. France is besides emerging arsenic a cardinal hub for AI finance and remains a premier location for world power and agri-food companies.

Even though London remains nan astir charismatic European metropolis for investment, nan UK saw a 13% diminution successful FDI past year. This was partially owed to debased productivity, challenging nationalist finances and comparatively precocious power prices, said EY.

In nan UK, nan study added that nan finance ambiance was besides shifting towards less but higher-quality projects, led by a beardown emergence successful investigation and improvement (R&D) finance schemes (+32%).

FDI successful Germany, meanwhile, decreased by 17% successful 2024, continuing a dependable diminution since nan pandemic. Investment successful Germany successful 2024 was chiefly fuelled by description connected existing projects alternatively than alleged greenfield schemes.

Investment successful Central, Eastern and Southern Europe surges

According to nan report, finance accrued crossed Central, Eastern and Southern Europe. Spain stood retired pinch 15% much projects successful 2024 than successful nan erstwhile year, driven by a beardown economical performance, comparatively debased power and labour costs, an abundant proviso of land, and nan support of EU funds. 

It pushed nan state to go nan fourth-largest destination for FDI successful Europe. 

In position of caller projects, different beardown performers see Denmark (+86%), Austria (+31%), Switzerland (+25%), Poland (+13%), Finland (+13%) and Italy (+5%), according to EY.

The important surge successful Denmark was caused by a tripling of nan number of business services, income and trading projects. 

Poland besides consolidated its position arsenic an business and logistics hub, capitalising connected its cardinal location, costs competitiveness and sizeable excavation of skilled  talent.​ 

Which sectors were astir affected?

Among European FDI projects, manufacturing investments slid by 9%, marking nan lowest level of caller manufacturing projects since 2020. 

New greenfield schemes, which are built from scratch, dropped by 20%. New accommodation typically make doubly arsenic galore jobs arsenic description s to already operational sites.

Office-based finance besides declined, arsenic nan displacement to distant activity reduced request for caller agency space. Software and IT services — historically nan largest assemblage for FDI — saw a 17% decline, partially owed to tighter outsourcing budgets. 

In total, FDI-related occupation creation tumbled by 16% successful 2024, said EY. 

While astir categories of FDI declined successful 2024, R&D-related finance increased, albeit from a comparatively debased level. This indicates that investors still see Europe an charismatic location for cutting-edge investigation crossed each sectors. 

What are nan expectations of business leaders for nan coming years?

An contiguous betterment successful FDI is improbable successful Europe. 

According to nan OECD, nan world outlook for 2025 remains unclear, arsenic mean worldwide GDP maturation is expected successful nan adjacent 2 years, constrained by rising waste and acquisition barriers and shifting policies.

Uncertainty is taking a toll connected Europe’s early prospects, too. The lingering threat of precocious waste and acquisition tariffs connected imports into nan US adds to semipermanent worries astir Europe’s competitiveness, feeding investor hesitancy. 

Despite this, nan mostly of nan surveyed world business leaders judge that Europe tin pull finance successful cardinal sectors. These see renewable energy, semiconductors, pharmaceuticals, AI and electrical vehicles (EVs).

“While wide finance has declined, location is simply a important opportunity for Europe to double down connected investments successful emerging sectors for illustration renewable energy, AI and electrical vehicles, which show existent promise,” Julie Linn Teigland, EY world vice chair, successful complaint of alliances & ecosystems successful nan EMEIA region, said. “It is basal that we accommodate and innovate swiftly to unafraid a prosperous early for Europe," she added. 

Only 59% of businesses intend to put successful Europe wrong nan adjacent 12 months, down from 72% past year. A small more, 61%, deliberation that Europe’s attractiveness will summation during nan adjacent 3 years.

Defence spending

Despite nan gloomy finance ambiance successful Europe, nan region’s prospects are nevertheless supported by affirmative economical indicators. Interest rates are falling and costs maturation is outpacing inflation. 

The assurance successful Europe’s system is besides underpinned by Germany’s plans to walk €1 trillion connected infrastructure and defence successful nan coming years, expected to beryllium a driver of FDI.

As nan US becomes a much unreliable subject partner, Europe must go much self-sufficient, raising its defence spending and bolstering home manufacturing.

The 2024 FDI information showed that European investments successful defence were already gathering momentum. Key players see French aerospace and defence elephantine Thales, which opened a caller assembly statement successful Belgium, and German defence group Rheinmetall, which is preparing a caller artillery manufacturing installation successful Lithuania.