Foreign direct investment (FDI) in Europe fell 4% last year, while Germany saw a sharp 12% drop in projects due to the economic slowdown and concerns over energy security, according to a study by professional services group EY.
This was the first annual decline in the number of European FDI projects recorded since the COVID-19 pandemic, following increases in both 2021 and 2022, Reuters reported. Foreign investment in the region is 14% lower than at its peak in 2017.
Companies surveyed cited volatile energy prices, turbulent domestic politics and a constant barrage of new European regulations in areas such as artificial intelligence, sustainability and data protection among their concerns.
Julie Teigland, EY EMEIA managing partner, said the pace of regulations coming into force was creating “daunting compliance challenges”, particularly for smaller businesses.
“The last 12 months will probably go down as the biggest period of regulation in EU history,” she said. “We are not saying regulation is bad … but it will be important to give SMEs time to cope,” Teigland added.
European Union leaders agreed in principle this month on a wide-ranging set of reforms aimed at reviving the bloc’s economy, but differences have emerged over how to free up the money needed to pay for them.
They ranged from deepening the EU’s single market to boosting research and creating a single energy market.
In the EY survey, France topped the foreign investment list despite a 5 per cent drop in investment projects, but these projects still created 4 per cent more jobs than the previous year.
The UK overtook Germany into second place with a 6 per cent increase in FDI projects in 2023. This follows a decline in the previous year, partly due to concerns over Brexit-related trade disruption and labour shortages.
The war between Russia and Ukraine hit FDI in neighbouring countries hard: Romania fell by 13 per cent, Finland by 32 per cent, Latvia by 31 per cent and Lithuania by 40 per cent.
