Back view of determined athletic woman jogging during bad weather conditions in forest.

Why Europe’s confidence persists despite investment at a nine-year low

Authors

15 minute read 15 May 2025
Related topics
EU Institutions
Government and Public Sector

US import tariffs make an immediate rebound unlikely, but there are signs of a long-term recovery.

In brief
  • Foreign direct investment (FDI) dropped 5% in 2024 as manufacturing investment slid 9%. FDI-related job creation tumbled 16%.
  • Out of 500 businesses surveyed, 37% of businesses postponed, canceled or scaled back European investment plans in 2024. US tariffs exacerbate hesitancy in 2025.
  • Landmark artificial intelligence (AI) and pharma projects indicate Europe’s potential in high-growth sectors.

Throughout 2024, according to this year’s EY Europe Attractiveness Survey, businesses around the world announced 5,383 greenfield and expansion projects in 45 European countries, compared with 5,694 in 2023 – a year-on-year decrease of 5%.

Slow economic growth, persistently high energy prices and a febrile geopolitical environment are the key reasons behind the second consecutive downturn in European FDI since 2020.

France, the UK and Germany remain the top three destinations, together accounting for roughly half of all FDI projects. However, all three countries experienced double-digit declines: France saw a 14% drop (1,025 projects in 2024), the UK 13% (853) and Germany 17% (608).

Rising uncertainty has led many investors to postpone or scale back investment plans. Meanwhile, 42% of the 500 global business leaders we surveyed between 31 January and 3 March 2025 believe US policies are reducing Europe’s attractiveness, with just 27% expecting them to have a positive impact. 

Despite the general downward trend, there are early signs that Europe can attract investment in the sectors that will dominate FDI in years to come, including renewable energy, semiconductors, pharmaceuticals, AI and electric vehicles (EVs). 

There is also confidence among investors, with 61% of surveyed businesses expecting investment to improve during the next three years. 

Two male cyclists enjoy a winter fat bike ride through a canyon in Alberta, Canada.
1

Chapter 1

FDI in Europe drops again

Economic woes take a toll on European FDI.

FDI in Europe fell for a second consecutive year in 2024 to its lowest level in the past nine years. A total of 5,383 projects were announced in Europe in 2024, down 5% from 2023. Investment now sits 16% below pre-COVID-19 pandemic levels, and 19% below the record high in 2017. The number of jobs created by FDI declined 16%.


Ongoing low economic growth, persistent high energy prices and geopolitical tensions were the key drivers of the fall. The Eurozone economy grew by just 0.7% in 2024, significantly below the US (2.8%) and China (5%). Investment was also impacted by longer-term structural issues, such as the continued erosion of manufacturing competitiveness with the likes of the US and China.

Improving economic conditions in the US, with which Europe competes for investment, were also an important factor. The number of projects announced by US investors in Europe declined 11% compared with 2023 and 24% from 2022. US investment in Europe is, in fact, at its lowest level in the past decade, accounting for only 18% of the total number of European FDI projects, down from 24% in 2015. 


Overall, while European FDI declined in 2024, it rose 20% in North America and remained stable in Asia, according to the UNCTAD Global Investment Trends Monitor, which tracks greenfield projects globally.1

Investment falls in Europe’s largest countries

There were double-digit percentage decreases in the number of projects announced in France (-14%), the UK (-13%) and Germany (-17%). Investment in these countries historically accounts for 50% of all FDI in Europe, though it dipped below this level (accounting for 46%) for the first time since 2018. Sluggish economic growth and geopolitical uncertainty hit investment across the board. 


Country-specific factors were also at play. France suffered due to a protracted period of political uncertainty following legislative elections. Investors may have also been deterred by high labor costs, impending exceptional corporate taxes for large businesses and uncertainty about the continuation of tax credits. Germany remains weighed down by the loss of cheap Russian energy, declining exports to China and weakness in its manufacturing sector. Meanwhile, the UK continues to suffer from low productivity, challenging public finances that affect its ability to offer incentives, and some of the highest energy prices in Europe.

By contrast, investment increased across Central, Eastern and Southern Europe. Spain was the standout performer in these regions, with the number of announced projects surging 15%. The country is now the fourth-largest destination for FDI in Europe. A combination of strong economic performance, relatively low energy and labor costs, and an abundant supply of land attracted investors. The country also benefited from €163b of funds through the NextGenerationEU scheme, the second-largest amount secured in the EU. 2

Other strong performers are Denmark (+86%), Austria (+31%), Switzerland (+25%), Poland (+13%), Finland (+13%) and Italy (+5%). The notable surge in Denmark was caused by a tripling of the number of business services and sales and marketing projects.

Manufacturing investment tumbles

Ongoing high energy prices and uncertainty about future demand led to a 9% drop in manufacturing FDI in 2024 to the lowest level of new projects since 2020. The number of newly created manufacturing jobs fell by 25%. Even more concerning, greenfield manufacturing projects (as opposed to expansions of existing facilities) declined by 20%. New facilities typically generate twice as many jobs as expansions to already operational sites.

The number of office-based FDI projects declined. For example, the number of business support services projects fell 9%. The rise of remote working means many businesses have excess capacity, with correspondingly lower demand for new office space.

Looking at individual sectors, FDI in the software and IT services sector, historically Europe’s largest for investment, fell 17%, with declining outsourcing budgets stifling investment.

Landmark projects inspire optimism

Despite the general downward trend, there are early signs that Europe can attract investment in the sectors that will dominate FDI in years to come, including renewable energy, semiconductors, pharmaceuticals, AI and electric vehicles (EVs).

Microsoft, for example, announced plans to locate a significant part of its AI R&D efforts in Ireland, which will create 550 research and engineering roles over the next four years. In addition, AstraZeneca announced it will significantly expand its scientific innovation presence in Spain. It plans to recruit 1,000 employees when it opens a new clinical innovation facility in Barcelona.

And, while most categories of FDI declined in 2024, R&D-related investment increased, albeit from a relatively low level. This indicates that investors still consider Europe an attractive location for cutting-edge research across all sectors in areas where it has a competitive advantage. 

Rock climber hanging on a rope. A woman climbs a rock in the shape of an arch. The girl climbs in the cave. Climbing rope for belaying. Rock climbing in Turkey .
2

Chapter 2

Trade turbulence jeopardizes recovery

Confidence in future attractiveness is also dropping. Concerns over trade and geopolitical developments have further fueled investor hesitancy.

Rising uncertainty disrupts investment plans

An immediate recovery in FDI seems unlikely. Some 37% of 500 investors surveyed between 31 January and 3 March 2025 postponed, canceled or scaled back their European investment plans last year. In parallel, the proportion signaling intent to invest in Europe in the next 12 months fell to 59% from 72% in 2024. 

A separate EY global survey of CEOs conducted in March and April 2025 found that 54% had delayed a planned strategic investment and 22% had stopped one.


How EY can help

  • Global trade operations

    Our flexible EY Trade Connect technology platform can help your business view its trade operations with clarity and act with precision. Learn more.

    Read more

The prospect of tariffs on imports into the US and record levels of economic uncertainty 3 added to businesses’ long-term worries about Europe’s competitiveness, feeding investor hesitancy. A string of comments by US officials in early 2025 about their reluctance to engage in Europe’s security is also likely to have spooked investors.

 

The feared impact of the Trump administration’s new policies on Europe’s prospects cannot be overstated. Some 42% of surveyed businesses think they will decrease Europe’s attractiveness, with just 27% optimistic that they will improve Europe’s appeal.

 

The survey was conducted during a period when the Trump administration had signaled that tariffs would be imposed on imports of goods from certain countries. However, the research was completed before the official announcement of retaliatory tariffs in early April. These tariffs were higher and imposed on more countries than expected. As a result, the International Monetary Fund (IMF) revised its GDP growth figures between January and April. Eurozone GDP growth is now projected at 0.8% for 2025 and 1.2% for 2026, reflecting a decline of 0.2% for each year compared to the January update.4

 

If the survey was conducted today — even following the recently announced 90-day postponement — it is likely that the short-term appetite to invest in Europe would be even lower. 

 

Confidence in long-term recovery is diminished, but remains

 

Rising uncertainty has also damaged investors’ longer-term view of Europe’s attractiveness. The proportion who believe Europe’s attractiveness will increase during the next three years fell 14 percentage points to 61%. More are confident that the attractiveness of China (67%) and the US (74%) will improve. In addition, surveyed investors for the first time flag the US as more alluring than Western Europe when asked which regions are most attractive for foreign investment.


The unprecedented nature of developments in the US makes their impact on Europe’s attractiveness difficult to predict. The worst-case scenario in which a high level of US import tariffs is introduced could result in significant inflation and currency fluctuation, rising interest rates, declining economic growth and plummeting stock markets, not just in the US but globally. This would result in significant further declines in FDI in Europe. However, lower tariffs would result in less of a hit to European FDI. Tariffs aside, the attractiveness of the US will also depend on the level of support offered through incentives and tax cuts.

Potential investors in Europe also have a skeptical eye on domestic developments, especially tax policy. Forty-five percent say Europe's approach to tax in the past three years has decreased its attractiveness as an investment destination compared with other locations around the world. Only 35% say tax policy has improved Europe’s appeal. 

Professional kiter makes the difficult trick on a beautiful background. Kitesurfing Kiteboarding action photos man among waves quickly goes
3

Chapter 3

Reasons for optimism

Despite the current investment climate, a majority of executives expect Europe’s attractiveness to improve over the next three years. Additional factors suggest recovery in FDI levels.

Despite the current pessimism, the research finds that 61% of surveyed businesses expect Europe’s attractiveness to improve during the next three years. There are many reasons for optimism. First, the growing reluctance of the US to support Europe militarily, while raising serious security questions, may also boost FDI in the long term. The altered stance of the US government has spurred countries to boost defense spending and build up domestic manufacturing and supply chains.

The 2024 FDI data shows that investment in defense is already gathering momentum through investments by European businesses. For example, French aerospace and defense giant Thales announced the opening of a new assembly line in Belgium to support a five-fold increase in the production of laser guided rockets. Meanwhile, German defense group Rheinmetall announced it will open a new artillery manufacturing facility in Lithuania.  

Business leaders and policymakers must capitalize on this momentum to swiftly address the structural issues affecting Europe’s attractiveness.

Serge Hanssens

EY Global Managing Partner for European Institutions

The performance of several Southern and Central European countries is also encouraging. For example, the economies of Spain and Poland are forecast to grow 2.8% and 3.5%, respectively, in 2025, far outstripping the EU average.5 Poland has consolidated its position as an industrial and logistics hub, capitalizing on its central location, cost competitiveness and sizable pool of skilled talent.​ Across Europe, some economic indicators are also moving in the right direction, with wage growth outstripping inflation and interest rates trending down. 

More generally, despite Europe’s structural problems, surveyed businesses point to the size of the market and quality of infrastructure as Europe’s greatest relative strengths, which could be the basis for the development of a highly competitive economy and a recovery in investment. 

In addition, as important as the US is as a source of investment in Europe, 60% of European FDI originates in Europe, often in the form of small and medium-sized businesses investing in neighboring countries. These businesses are less swayed by overseas developments.

Finally, new trade and security concerns are prompting urgent and immediate responses from policymakers. “Recent events outside Europe have drastically heightened the sense of urgency and decisiveness among EU policymakers and within individual European countries,” notes Serge Hanssens, EY Global Managing Partner for European Institutions. “Business leaders and policymakers must capitalize on this momentum to swiftly address the structural issues affecting Europe’s attractiveness.”

 

Conclusion — revitalizing Europe attractiveness 

Our second article analyzing the Europe Attractiveness Survey, which we will release on 17 June, will outline how policymakers can revive Europe’s attractiveness. It will focus on the following questions:

  • What could be the European response to US tariffs?
  • What is the right balance between energy security, decarbonization and cost competitiveness?
  • How can Europe maintain openness to global trade while better defending its economic and technological interests?
  • In which sectors should Europe become more autonomous?
  • How should Europe support SMEs and other vulnerable sectors?
  • How can Europe spur innovation?
  • How can Europe keep pace in high-growth sectors such as AI, life sciences and defense? 
  • What is the right blend of predictability and agility when it comes to government support, tax and regulation?
  • How can Europe turbocharge investment in education and physical and digital infrastructure? 

Dive deeper into Europe Attractiveness Survey findings

Register your interest in the Europe Attractiveness Survey 2025.

Sign up now

Summary 

FDI in Europe declined to its lowest level in the past nine years in 2024 following a 5% annual decrease. New jobs created by foreign investment fell 16%. Weak economic growth, high energy prices and geopolitical uncertainty combined with long-term structural issues caused the decrease. The introduction of US import tariffs and the new US administration’s unwillingness to support European security have reduced the chance of a quick rebound. However, landmark AI, pharma and renewable projects signal Europe’s long-term recovery potential.


Related articles

How do CEOs chart a path to growth when the map keeps changing?

As cautious CEOs navigate trade wars and tariffs, strategic leaders can use M&A as a long-term value driver. Read more.

Andrea Guerzoni + 2

The five habits of successful Geostrategists

All companies are shifting strategies to adapt to geopolitical risk. Here is how to invest more efficiently and strategically than your competitors. Read more.

Courtney Rickert McCaffrey + 1

How tax and trade leaders can prepare for global tariff disruption

Explore how new US tariffs reshape trade, driving tax leaders to adapt. Understand steps to build resilience and seize emerging opportunities.

EY Global

    About this article

    Authors

    Related topics
    EU Institutions
    Government and Public Sector

    EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.