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Europe continues to hold a strong power of attraction, with Western Europe ranked by investors as the second most attractive investment destination for global FDI (33%), and followed by CEE (21%).

51% of respondents believe the continent will become still more attractive as an FDI destination.

These positions, awarded when the Eurozone crisis was intense, confirm the strong fundamentals and strengths of Europe. Yet the score awarded by investors, who once ranked Europe as the most attractive destination for an FDI project, has fallen by more than one-half since 2006.

In this year’s survey, Western Europe’s attractiveness slid by 2 percentage points to 33% and CEE’s attractiveness suffered a steep decline of 8 percentage points to 21%, as investors aired their concerns about the European framework. As a result of this dip, and a simultaneous rise in the attractiveness of other rapid-growth economies, CEE is now competing with North America and emerging markets such as India and Brazil.

This confirms that the global economy has turned into a multi-polar world; there are now more attractive destinations in which to invest, and Europe is one among them. Western Europe, however, is still ranked far ahead of these markets and is challenging the leader, China.

China stretches its image lead

Investors are still fascinated by rapid-growth markets. Business leaders see a greater role for emerging giants, particularly China, offering bigger returns on their investments. In addition to the sheer size of its market and pace of consumption growth, China also has built a broad economy, specialized clusters in key industries, easy access to international markets and an enduring image as a low-cost production base, which together make the country a magnet for investors.

Central and Eastern Europe falls back

CEE has suffered a significant loss in investor confidence, from 52% of respondents in 2006 ranking it the most attractive place in the world for an investment, to just 21% in 2012. Multiple factors explain this decline. A few years ago, CEE shone in the reflection of Western Europe’s halo. It was seen as a low-cost location to serve high-spending Western consumers. Today, Europe’s luster has dimmed, and CEE has lost its shine.

North and South: the great divide

Western Europe is not homogenous in attractiveness. Dig deeper and investors say Northern Europe is relatively more attractive (26%). Though Germany unquestionably has the strongest appeal, Sweden, the Netherlands and Denmark are also often quoted as attractive destinations. But Southern Europe, hard hit by the sovereign debt crisis, faces a difficult image: it is attractive to only 3% of business leaders quizzed.

Overall, investors remain confident in Europe

Investors seem pretty confident in Europe’s capacity to surmount its complex and multiple difficulties. Four in every five say that Europe will be able to overcome the crisis. Yet containment is not resolution. Many European countries are facing up to excessive debt, whether public or private; under-capitalized banks; shrinking economies or inadequate growth; too many unemployed and too little structural reform.

Business leaders are demanding bolder, meaningful and long-term steps to ensure sustained growth. The IMF expects the Eurozone economy to suffer mild recession in 2012, but begin to normalize in early 2013.

This expectation assumes policymakers will intensify efforts to address the crisis and turn rhetoric into action that will revive growth and lure private investment, after two years of tightening austerity measures.

Europe’s future attractiveness: where the grass is greener

How do you anticipate the evolution of Europe’s attractiveness over the next three years?

EY - How do you anticipate the evolution of Europe’s attractiveness over the next three years?
Source: EY’s European attractiveness survey 2012. Total respondents: 840.

In the medium term, investors are, on balance, positive about Europe’s future attractiveness. Overall, 38% of survey respondents believe the continent’s attractiveness will improve, and a similar proportion say it will remain the same. In total, three out of four investors reckon things won’t get any worse. Only one in five is pessimistic.

Foreign investors are markedly more upbeat

Among investors not present in Europe, 51% believe the continent will become still more attractive as an FDI destination. In Europe, an incessant and alarming news flow about austerity and economic difficulties acts as
a drag on investor optimism. But executives based in emerging economies, surrounded by growth and opportunity, see a brighter future for Europe too. In a globalizing world, that should make them more energetic investors in the old continent.


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