Foreign direct investment (FDI) into Europe stalled in 2022, rising only 1% compared with 2021, and remains 7% lower than in 2019, just before the COVID-19 pandemic hit, according to the annual EY European Attractiveness Survey 2023.
France, the UK and Germany continue to attract the bulk of FDI and retain the top three spots, accounting for around half of total projects. But in 2022 their performance was muted: FDI projects edged up 3% (1,259 projects) in France but were down 6% in the UK (929) and 1% in Germany (832).
Despite signs that FDI into Europe would bounce back in 2021 post-COVID-19 pandemic, the aftershocks of the war in Ukraine, weak economic growth, supply chain disruption, rising inflation and soaring energy costs have contributed to the stalled investment into Europe.
Throughout 2022, businesses around the world announced 5,962 greenfield and expansion projects in 44 European countries, compared with 5,877 in 2021 – a year-on-year increase of just 1%, compared with 5% growth in 2021. Investment remains 10% lower than its peak in 2017.
The C-suite survey conducted as part of the research found that 29% of responding businesses have postponed planned investments as a direct result of the energy crisis.
The total number of jobs created in Europe as a result of FDI fell 16% year on year to 343,634. This fall is indicative of investor caution in the face of uncertainty across Europe’s markets. Responding companies cite economic issues of rising interest rates (45%), high inflation (40%) and soaring public debt levels (36%) as the three top risks impacting investment across Europe.
However, France’s larger volume of projects creates fewer jobs in total (38,102) and on average (33) than in the UK (46,779 total, 59 average), in part because of higher wage costs and more restrictive labor regulations.
There is scope for optimism, as 67% of the businesses surveyed indicate plans to establish or expand operations in Europe over the next year – a sign that Europe matters in current and future business plans, but expectations are high regarding both the EU and Member States’ responses to global competition.