European attractiveness survey 2015
FDI inflows into Europe rose by 36% in 2014, the biggest increase among major regions. This year, investors have ranked Western Europe (50%) as the world’s most attractive FDI destination for the second year running.
The global uptick in M&A was mirrored in Europe, where companies began a wave of consolidation in financial services, pharmaceuticals, manufacturing and communications. The weakening of the euro, which has accelerated since year-end, has made many Continental European assets or investment projects more affordable, especially for those paying in dollars, pounds or Swiss francs.
But investors may also have reacted to the first signs of a long-overdue and multispeed European economic recovery that has since been confirmed, which is encouraging a rising wave of business investment across the region. In the final quarter of 2014, a sharp fall in energy prices also bolstered Europe’s attractiveness and stimulated its nascent economic recovery.
Europe revives as global FDI falters
Europe’s US$305b of investments made up 24% of global FDI, from 17% in 2013. Inflows to the EU, at US$267b, rose 13% but remained at only a third of their 2007 peak level.
Global FDI flows, including M&A, fell 8% to US$1.26t in 2014. Yet within the overall near-stagnation, remarkable shifts occurred. Flows into developing economies reached a new peak of US$704b, up 4%, as increases in Asia compensated for declines in Africa, Latin America and the Caribbean.
Europe shines, China fades
Investors who ranked China the most attractive destination for establishing operations in 2012 and 2013 rank it third in 2015, with 38% of the votes. China is rebalancing its economy from investment to consumption, accompanied by a managed slowdown. With wages in manufacturing rising at an average pace of 14% per year between 2009 and 2001, the appeal of Chinese labor costs is diminishing.
Investors see a brighter future in Europe
This year, 59% of investors believe that Europe’s attractiveness will improve in the next three years. What’s most notable is that investors already established in Europe ranked Western Europe (55%) as the most preferred location to set up operations, followed by China (37%), but investors not present in Europe, much prefer North America (52%) and China (40%) over Western Europe (30%).
- Attractiveness of Northern Europe has risen five points since 2014, and that of Western Europe overall, three points.
- Central and Eastern Europe (CEE): has diminished by 14 points since 2008, when it was rated more attractive than both Western Europe and North America.
- The allure of Southern Europe has been undermined by fiscal problems, recession and labor market rigidities.
- North America (39%, +8 points) has moved up one spot, it is now the second most attractive FDI destination.
- Emerging markets: China’s attractiveness has fallen six points to 38% since 2014. Russia attractiveness fall eight points. India (18%) and Brazil (14%) are resilient, and each shows a one percentage point improvement in attractiveness against 2014.