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Foreign direct investment in Europe declines for the first time in the last six years

Foreign direct investment in Europe declines for the first time in the last six years

US investments in Europe decline for the first time in the past three years

The number of foreign direct investment projects (FDI) in Europe fell by 4% (to 6,356 projects) in the last year, according to the EY European Attractiveness Survey. Despite this decline, the first in the last six years, investments remain at the second highest level since the first edition of the EY study since 2000. However, investors' attitude is pessimistic, with only 37% of the companies surveyed expecting an improvement in Europe's attractiveness over the next three years, down from 50% last year.

But the technology sector contradicts this downward trend, the number of FDI projects in this field reached a high of 1,227 projects in 2018 (an increase of 4% over the previous year). The increase was due mainly US companies, which accounted for 37% of FDI projects in Europe digital. Foreign direct investment has also been highlighted in Europe's traditional industrial sectors: the total number of FDI projects in transport, machinery and chemicals has increased by 4% to 1,729 projects in 2018.

"Although Europe remains the most attractive region for foreign investment, 2018 was a critical year for Europe's future. From a geopolitical point of view, nationalism and isolationism, culminating in Brexit, have affected confidence in investment. As far as the technological changes are concerned, we have noticed how Central and Eastern Europe has turned into a workshop across the continent, by massively outsourcing services in this area. At the same time, as the results of the study show, accelerated digitization leads both governments and companies to make important changes, starting with education and continuing with entrepreneurship, capital markets and infrastructure, "said Bogdan Ion, Country Managing Partner EY Romania and Moldova Chief Operating Officer for EY Central and South Eastern Europe and Central Asia Region.

Map of investments in 2018

The largest two economies in Europe, the United Kingdom and Germany, which accounted for about one-third of foreign direct investment in Europe, attracted 13% fewer investments than the previous year (1,054 and 973 FDI projects respectively). The negative result of the United Kingdom, a 35% drop in the number of projects in the manufacturing sector, has been generated by the United Kingdom's migration to single market service capabilities.

In addition, the number of newly opened central offices, which create high added value and well-paid jobs, jumped from 98 in 2017 to 48 last year.

And in Germany, traditionally strong sectors have been affected. There was a 7% decrease in production in the automotive sector, mainly amid growing concerns over a Brexit without agreement, US tariffs and a drop in demand in the Chinese market.

In France, which saw a spectacular 31% increase in the number of foreign direct investment projects in 2017, their number increased by only 1% in 2018. But for the first time in France, several FDI projects in the R & D and manufacturing sectors last year (144 and 339, respectively) than in any other European country.

Among the top 10 most attractive European destinations for FDI, there have been notable increases in the number of investment projects: Spain (32%), Belgium (29%), Poland (38%), Turkey (14%) and Ireland %). Italy attracted a 63% increase in the number of foreign direct investment projects compared to the previous year and had the fastest rally among the top 20 countries in the list. Significant drops in the number of FDI projects in the Netherlands (-32%), over 10%, retain their position in the top 10 investment destinations, Sweden (-32%) and

Czech Republic (- 51%). Romania ranks 13th, with 109 foreign direct investment projects attracted in 2018 and a 13% drop from 2017.

US investment in Europe slow the pace

The number of foreign direct investment projects in the United States rose only 3% last year, compared to an average of 8% over the last four years. The slowdown was largely due to the US tax reform introduced in December 2017, and the repatriation of assets and jobs by US multinationals. However, the US remains the largest individual investor in Europe in 2018, with 22% of its investment projects on this market.

Intra-European investment continues to be the main driver of foreign direct investment on this market, despite a slight 2% annual decline. But the number of investments in Europe outside the continent has fallen by 8%.

The technological race began in Europe

The European technology sector is booming with a number of new FDI projects that reached a record high of 1,227  in 2018 and a 4% increase over the previous year. Overall, the number of foreign direct investment projects in the digital sector has increased more than twice, from 510 to 1,227 over the past five years.

According to the study's findings, the main sector that will fuel Europe's development is digital, followed by clean or clean technologies and energy and utilities. London is ranked fourth by investors as a future technological hub after San Francisco / Silicon Valley, Shanghai and Beijing. Berlin is ranked seventh globally and second in Europe, while Paris ranks 12th in the world and third in Europe.

The survey shows that more than a third of the cities in the world are most likely to have the next technological giant. Investors indicate London, Berlin, Paris, Stockholm and Amsterdam as the most attractive five technology centers in Europe.

A warning to be taken into account

Investors are still attracted to Europe, 56% of the companies included in the study mention Western Europe as one of their major global destinations for their operations, a slight increase from 53% in the previous study.

But there is a discrepancy in terms of concrete plans, only 27% of surveyed companies plan to establish or expand their operations in Europe in 2019, a significant drop from 35% last year.

The survey indicates a decrease in investor optimism, with only 37% of the companies surveyed expecting an improvement in Europe's attractiveness over the next three years, up from 50% last year. This reduction is mainly caused by the diminishing of FDI plans in production and supply chains.

Paris is considered one of the three most attractive European cities for investment by 30% of companies, down from 37% last year, while 25% mentioned London, compared with 34% a year ago. The capital of the United Kingdom is ahead of Berlin in the attractiveness rankings by only 1%, a steep change over last year, when it was 10% ahead of Berlin.

Geopolitical concerns erode investment plans in Europe

Geopolitical risks diminish foreign direct investment plans. Brexit is one of the three main risks to Europe's attractiveness over the next three years, as 38% of respondents said. Political instability in the European Union and the intensification of populist and protectionist tendencies are placed second and third among investors' concerns.

The study's data show that the top priority of the EU should be to reform economic governance, as stated by 42% of companies, to ensure sustainable economic growth.

 

 

 

 

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