Investing in Europe is at a 9-year low: Is a rebound coming?
While the world saw a modest growth in foreign direct investment (FDI) in 2024, Europe was a less favoured destination for capital.
The number of projects in the region fell to its lowest level in nine years, according to the 2025 European Attractiveness Survey by EY, drawing answers from 500 international business leaders between January and March 2025.
Over one-third of them, 37%, said that they postponed, cancelled or scaled back European investment plans in 2024, due to weak economic growth, high energy prices and geopolitical tensions.
'Businesses around the world announced 5,383 greenfield and expansion projects in 45 European countries, compared with 5,694 in 2023 — a year-on-year decrease of 5%,' the report found.
In comparison, FDI projects in Europe declined by 4% year-on-year in 2023, and they grew by 1% between 2021 and 2022.
Currently, the number of foreign direct investment projects is 19% lower than its peak in 2017.
Even though Europe as a whole was not the number one destination for new projects in 2024, Luxembourg stood out as the top country among OECD members, with the highest value of foreign direct investments. These came to $133bn (€117bn) in 2024, according to data from the OECD. The US received the second-highest amount, at $66bn (€58bn), followed by Canada ($42bn, €37bn).
The EY survey found that France, the UK and Germany remain the top three destinations in Europe, together accounting for roughly half of all FDI projects in the region. However, all three countries experienced double-digit declines last year.
The number of new projects in France fell by 14%, mainly due to political uncertainty and high labour costs in 2024. This is despite the fact that it remains the leading destination for FDI investment, according to the report. France is also emerging as a key hub for AI investment and remains a prime location for international energy and agri-food companies.
Even though London remains the most attractive European city for investment, the UK saw a 13% decline in FDI last year. This was partially due to low productivity, challenging public finances and relatively high energy prices, said EY.
In the UK, the report added that the investment climate was also shifting towards fewer but higher-quality projects, led by a strong rise in research and development (R&D) investment schemes (+32%).
FDI in Germany, meanwhile, decreased by 17% in 2024, continuing a steady decline since the pandemic. Investment in Germany in 2024 was mainly fuelled by expansion on existing projects rather than so-called greenfield schemes.
According to the report, investment increased across Central, Eastern and Southern Europe. Spain stood out with 15% more projects in 2024 than in the previous year, driven by a strong economic performance, relatively low energy and labour costs, an abundant supply of land, and the support of EU funds.
It pushed the country to become the fourth-largest destination for FDI in Europe.
In terms of new projects, other strong performers include Denmark (+86%), Austria (+31%), Switzerland (+25%), Poland (+13%), Finland (+13%) and Italy (+5%), according to EY.
The significant surge in Denmark was caused by a tripling of the number of business services, sales and marketing projects.
Poland also consolidated its position as an industrial and logistics hub, capitalising on its central location, cost competitiveness and sizeable pool of skilled talent.
Among European FDI projects, manufacturing investments slid by 9%, marking the lowest level of new manufacturing projects since 2020.
New greenfield schemes, which are built from scratch, dropped by 20%. New facilities typically generate twice as many jobs as expansions to already operational sites.
Office-based investment also declined, as the shift to remote work reduced demand for new office space. Software and IT services — historically the largest sector for FDI — saw a 17% decline, partly due to tighter outsourcing budgets.
In total, FDI-related job creation tumbled by 16% in 2024, said EY.
While most categories of FDI declined in 2024, R&D-related investment increased, albeit from a relatively low level. This indicates that investors still consider Europe an attractive location for cutting-edge research across all sectors.
An immediate recovery in FDI is unlikely in Europe.
According to the OECD, the global outlook for 2025 remains unclear, as moderate worldwide GDP growth is expected in the next two years, constrained by rising trade barriers and shifting policies.
Uncertainty is taking a toll on Europe's future prospects, too. The lingering threat of high trade tariffs on imports into the US adds to long-term worries about Europe's competitiveness, feeding investor hesitancy.
Despite this, the majority of the surveyed international business leaders believe that Europe can attract investment in key sectors. These include renewable energy, semiconductors, pharmaceuticals, AI and electric vehicles (EVs).
'While overall investment has declined, there is a significant opportunity for Europe to double down on investments in emerging sectors like renewable energy, AI and electric vehicles, which show real promise,' Julie Linn Teigland, EY global vice chair, in charge of alliances & ecosystems in the EMEIA region, said. 'It is essential that we adapt and innovate swiftly to secure a prosperous future for Europe," she added.
Only 59% of businesses intend to invest in Europe within the next 12 months, down from 72% last year. A little more, 61%, think that Europe's attractiveness will increase during the next three years.
Despite the gloomy investment climate in Europe, the region's prospects are nonetheless supported by positive economic indicators. Interest rates are falling and wage growth is outpacing inflation.
The confidence in Europe's economy is also underpinned by Germany's plans to spend €1 trillion on infrastructure and defence in the coming years, expected to be a driver of FDI.
As the US becomes a more unreliable military partner, Europe must become more self-sufficient, raising its defence spending and bolstering domestic manufacturing.
The 2024 FDI data showed that European investments in defence were already gathering momentum. Key players include French aerospace and defence giant Thales, which opened a new assembly line in Belgium, and German defence group Rheinmetall, which is preparing a new artillery manufacturing facility in Lithuania.
Uzbekistan's electrical engineering sector has expanded eightfold in five years, driven by demand for household appliances and solar components.
The industry generated 2.1 billion euros in 2024 – half exported – while employing over 85,000 people, according to the Uzeltechsanoat Association.
We visited one of the country's largest manufacturing hubs, the Texnopark complex, housing 17 facilities that produce 1.4 million items annually – from home appliances to industrial heating systems.
We also spoke to cable manufacturer Artikul Aziya Kabel about its plans to boost European exports by 40% over two years with support from the European Bank for Reconstruction and Development.
The sector expects to continue its growth trajectory, with the goal of reaching annual export volumes of almost 2.7 billion euros.
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