Foreign direct investment (FDI) into Europe is at its lowest level in almost a decade, according to EY’s latest Europe Attractiveness Survey. In 2024, FDI dropped by 5%, manufacturing investment fell by 9% and FDI-related job creation dropped by 16%.
Still, investors are optimistic that Europe will attract investment in sectors with major growth potential such as AI, pharma and defence. The report found that 37% of the 500 businesses surveyed, cancelled or diminished European investments in 2024.
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In 2024, businesses announced 5,383 foreign investment projects in 45 European countries, a year-on-year decrease of 5%; the year before, 5,694 projects were announced. The survey cites the three main drivers of this decrease as geopolitical tensions, slow economic growth and sticky high energy prices.
This is the second consecutive year in which FDI into Europe has fallen. Investment in the continent is currently 16% below pre-pandemic levels. It is also 19% behind its peak in 2017, when there were 6,653 projects in Europe.
The top FDI destinations in Europe, France, the UK and Germany, which receive roughly half of the continent’s foreign projects, saw sharp decreases. France saw a fall of 14%, the UK 13% and Germany 17%. Domestic conditions related to politics, public finances and energy prices have also played a part in these decreases.
The uncertainty from the US is also having an effect. The possibility that high tariffs will leave Europe unable to export to one of the world’s biggest consumer markets is decreasing its competitiveness in the eyes of investors. Out of the 500 businesses surveyed between 31 January and 3 March 2025, 42% of them believed that US policies would hurt Europe’s competitiveness. Only 27% of respondents thought they would increase Europe’s appeal.
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By GlobalDataThe survey does not include responses taken after 2 April, when reciprocal tariffs were announced, which would have likely exacerbated the negative outlook.
US investor interest in Europe also decreased in 2024, with an 11% decline in the number of projects from 2023 to 2024 and a 24% decline from 2022. Inflows from the US are the lowest in a decade, making up only 18% of FDI intake in 2024 after reaching 24% in 2015.
Investors are still optimistic that certain sectors with high growth potential will be established in Europe in the next few years. Fears that the US will not back European security like it has before could drive investment in the defence sector. There are already signs that this is happening, as industry giants ramp up manufacturing in Europe.
Europe also has the potential to attract investment in sectors such as renewable energy, electric vehicles, AI and semiconductors.
The survey found that 61% of respondents, a 14% drop, expected Europe’s attractiveness to grow in the next three years.
