Europe’s investment landscape shifts as short-term global headwinds test FDI, but long-term confidence endures

• France remains top investment destination, along with United Kingdom and Germany
• Foreign direct investment (FDI) surges in artificial intelligence (AI) and defense by 96% and 84% respectively
• Europe remains an active destination with over 5,000 projects announced in 2025, despite overall drop in FDI of 7%

Driven by economic headwinds and geopolitical tensions, foreign direct investment (FDI) into Europe declined 7% year-on-year in 2025. This is according to the EY organization’s European Attractiveness Survey 2026, the most comprehensive and long-running annual analysis of FDI into the continent.

Globally, geopolitical volatility and macro-economic uncertainty are keeping investor sentiment cautious. This is reflected in Europe, with 41% of respondents citing geopolitical tension and conflict as the top risk to Europe’s attractiveness for investors over the next three years - up from 35% in 2025 and 27% in 2024. Over one-third (35%) of respondents cite slow economic growth, rising public debt and inflationary pressures driven by higher energy costs as key challenges.

However, despite the uncertain global backdrop, the survey highlights that Europe remains a resilient and attractive destination for foreign investment. In 2025, the region attracted over 5,000 new projects, and the majority of leaders surveyed (60%) expect Europe’s attractiveness to improve over the next three years, reflecting continued confidence in the region’s long-term fundamentals, including its infrastructure and large addressable market.

Bridget Walsh, EY EMEIA Area Managing Partner says: “This is a story of shift, not retreat: the region still attracted over 5,000 projects, with strong momentum in strategic sectors like AI and defense. The opportunity now is to strengthen competitiveness — including through continued progress on simplification, energy affordability and access to capital — so innovation can scale and long term investment continues to flow.”

While FDI falls in traditional destinations, new pockets of growth emerge

Europe remains a competitive destination as new centers of growth are emerging across Southern, Central and Eastern Europe, supported by competitive labor costs, available industrial land, ongoing infrastructure investment and expanding digital ecosystems.

Poland and Spain posted FDI increases of 10% and 7%, respectively, with Turkey recording a 20% increase. At the same time, individual regions are emerging as areas of growth, including Greater Lisbon and Catalonia, where FDI rose by 11% and 2% respectively.

Europe’s top investment destinations saw FDI decline in 2025, with France down 17%, the UK down 14% and Germany down 10%.

Investment from the US, historically the largest single-country investor in Europe, remained stable; however, Germany’s role as an investor in other European countries also weakened significantly, falling 28%.

While investment intentions have eased from recent peaks (59% in 2025 and 72% in 2024), 54% of leaders still plan to establish or expand operations in Europe over the coming year. This is above 2022 (53%) and 2021 (40%) levels — signaling continued underlying confidence.

Investment in high-growth sectors rises, while traditional industries are under pressure

There are also signs that Europe’s innovation credentials are strengthening. FDI in high-growth sectors such as AI, defense and low-carbon energy are expanding, even as broader near-term investor sentiment remains cautious. The number of AI FDI projects rose 96% in 2025, creating more than 14,000 new jobs (+41% year-on-year).

The number of defense-related FDI projects increased 84%, responsible for almost 7,000 new jobs, and was strongest in the UK, France and Ukraine.

FDI in the low‑carbon energy sector increased by 25% in 2025, reinforcing Europe’s attractiveness as a leading destination for green investment.

However, foreign investment declined in parts of Europe’s core industrial sectors in 2025, reflecting persistent structural issues, rising production costs, high energy prices and intensifying global competition. Healthcare manufacturing projects declined by 28%, chemicals fell 19% and automotive projects fell 11%.

The full report can be accessed on ey.com here, in addition to further detail on investment attractiveness of a range of other countries.

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About the survey

The EY European Investment Monitor (EIM)

Our evaluation of FDI in Europe is based on the EY EIM. This proprietary database helps us to track projects announced in 2025 across 47 countries. The database tracks the FDI projects that have resulted in the creation or the expansion of facilities and jobs.

The EY EIM database focuses on investment announcements, the number of new jobs created and, where identifiable, the associated capital investment. Projects are identified through the daily monitoring of more than 10,000 news sources. The EY EIM database shows the reality of investment in manufacturing and services by foreign companies across the continent.

The following categories of investment projects are excluded from the EY EIM: M&A and joint ventures (unless these result in new facilities or new jobs being created); license agreements; retail and leisure facilities; hotels and real estate; utilities; extraction activities; portfolio investments (pensions, insurance and financial funds); factory and other production replacement investments; and nonprofit organizations.

The perception survey

This study examined Europe’s perceived attractiveness via an anonymous online survey of international decision-makers. We define attractiveness of a location as a combination of image, investor confidence and the perception of a category or area’s ability to provide the most competitive benefits for FDI.

Field research was conducted by FT Longitude between 11 February and 30 March 2026, based on a representative panel of 500 senior corporate executives (C-suite or C-1 roles). Only individuals who are involved in, or in charge of, their organization's decisions about establishing or expanding operations were included in the survey. The survey panel's demographics were based on the most recently available FDI data (2024).

The survey aimed to cover a representative sample of investors into Europe by geography, industry grouping and company size. Approximately 60% of respondents work for companies headquartered in Europe, and 40% for companies headquartered elsewhere. Respondent companies operate across six broad sector categories and are distributed across a full spectrum of company size (by turnover).