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Europe’s ability to attract investment and create jobs is at its lowest in 9 years—and the U.S. is partly to blame

May 16, 2025
in Business
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Europe’s ability to attract investment and create jobs is at its lowest in 9 years—and the U.S. is partly to blame
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Europe’s ability to attract investment and create jobs is at its lowest in 9 years—and the U.S. is partly to blame

Europe faces an important turning point: the region has experienced three consecutive years of falling investment, which is key to invigorating business and creating jobs.

In 2024, the number of foreign direct investment (FDI) projects slid 16% year-over-year to 270,000—the lowest level in the last nine years, barring 2020 when the pandemic took hold of the world. 

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Within Europe, France, the U.K., and Germany were among the top countries receiving FDI, according to the annual EY European Attractiveness Survey published Friday. 

But any celebration will have to wait: even though they had the most foreign projects, each of the three countries clocked a double-digit decline in the number of projects, with Germany facing the sharpest drop. 

American investment in Europe is at its lowest level in the past decade, as the two world powers try to navigate a trade minefield.  

“Europe has long been a magnet for foreign investment, thanks to its size, stability and skilled workforce. However, recent geopolitical tensions are shaking investor confidence and turning the spotlight away from the continent,” said Julie Teigland, an EY managing partner who co-authored the report.

The EY survey is based on proprietary data tracking foreign investment projects in 45 countries and a perception survey covering global C-suite executives. It predated President Donald Trump’s official tariff announcement last month but still captured business sentiment in the lead-up.  

While Europe lacked investments, North America saw a 20% jump in FDI as more companies tried to offset possible tariff impacts by ramping up production in the U.S.

Many factors contributed to the investment decline. The usual suspects, including sluggish economic growth in the Euro area, geopolitical tensions, and weaker manufacturing competitiveness compared to the U.S. and China, pushed the attractiveness of the entire region down. 

“High energy prices are also dampening Europe’s investment appeal, making it less attractive for companies seeking cost-effective operations. Together with rising trade barriers, these factors are prompting businesses to think twice before committing to investments in Europe,” Teigland said.

Country-specific elements, such as election-related uncertainties in France and Germany, plus low productivity in the U.K., didn’t bode well with investors.

Some of these headwinds weighed on Europe’s FDI even in 2023. Teigland said at the time that the decline should be seen as a “wake-up call,” and that regulation in the region shouldn’t come at the cost of business growth and innovation. 

Ana Botín, the executive chair of Spanish bank Santander and a pre-eminent business leader in the region, told Fortune earlier this year that jumpstarting productivity in Europe started with acknowledging the urgent need for change. 

“To do that there are some quick wins, like focusing on reducing regulatory and supervisory complexity. But longer term, we must do much more to embrace innovation and enterprise, creating a business environment and culture that rewards smart risk-taking,” she said.

The disconcerting reality for investors is that 2025 could unleash a whole new set of challenges.

“The feared impact of the Trump administration’s new policies on Europe’s prospects cannot be overstated,” the EY report noted. 

Some 42% of the 500 business leaders EY surveyed between 31 January and 3 March 2025 think American policies are making Europe less attractive. Over half of the CEOs EY previously surveyed also deferred their investment plans owing to the uncertain climate.

Investors might need to wait and watch

As with more trends in Europe, even if the general narrative feels alarming, there are pockets of immense opportunity. Sectors like renewable energy and AI have inspired confidence among investors, Teigland noted.

“These areas hold real promise for future growth, even as traditional investment patterns face disruption,” she said.

Take Denmark, for example. The country saw an 86% increase in foreign investment, critical to its private sector employment. Greenfield investment—that is, when a foreign company sets up new operations from the ground up—has also been historically strong in the Nordic country.   

Spain is another example of a booming economy. Its GDP grew 3.2% in 2024, or five times the pace of the Eurozone, and a country that EY notes is a “standout performer” with a 15% jump in investment. 

An ample supply of relatively low-cost land, energy, and labor proved a magnet for investment, along with a €163 billion boost from the EU through a scheme to build more resilient economies. Pharmaceutical company AstraZeneca has announced it will expand its presence in the country, increasing recruitment. 

“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,” the EY report found.

European businesses are investing more in other regional countries, such as German defense firm Rheinmetall’s new manufacturing plant in Lithuania, which can also help local economies. 

Even though the year ahead looks mired in complexity and unpredictability, experts think Europe’s allure as an investment destination will recover over the next three years.

This story was originally featured on Fortune.com

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