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10 December 2012

EY: Rise in foreign investment into Europe in 2012 despite volatility

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Despite the global downturn and the uncertainties created by the ongoing Eurozone crisis, Europe continued to attract foreign direct investment (FDI) in the first half of 2012, according to interim data in Ernst & Young’s mid-year European Attractiveness Survey.

In the first half of 2012, foreign companies made more than 1,500 investment decisions in Europe, an increase of 6.3% on the first six months of 2011. Jobs created by FDI in the first half of 2012 go some way to compensate for the jobs lost as a result of restructuring and squeezes on the supply chain across many industries in Europe.

Marc Lhermitte, Head of Ernst & Young’s International Location Advisory Services, comments, “Investors appear to have accepted the uncertainty and volatility in many European countries and industries as a “new normal”. The economic woes across the region are outweighed by the strong fundamentals that Europe presents including; the biggest concentration of high-power consumers, diverse and productive labor skills, an unmatched innovation climate, and superior infrastructure.”

Where is the investment going?
Western European (WE) countries continued to attract a greater number of investments, but they were of lower value and created fewer jobs than projects elsewhere on the continent. However, Central and Eastern Europe (CEE) began to recover as a FDI destination in the first half of 2012. This follows a significant slowdown in 2010 and 2011, when investment in the region hit historic lows. In the first half of 2012, WE attracted 75% of all FDI decisions. However, more than half of the jobs created by FDI were in CEE countries.

The UK remained the largest recipient of FDI projects in the first half of 2012 with France maintaining second place. However, Spain moved ahead of Germany to take third position. There has been a welcome increase in both the services and manufacturing sectors, especially in CEE countries such as the Czech Republic. There has also been a substantial increase in the logistics sector, with US and German firms being the principal investors.

Three sectors drive FDI in Europe
Together, the business services and software industries held their positions as the top two generators of FDI projects in Europe. The automotive sector ranked third in terms of the FDI projects and was the largest contributor of FDI jobs – thanks to large investments from German, American and Japanese original equipment manufacturers and suppliers.

In terms of FDI funds, the US remain the largest external investor in Europe, mostly in the business services and software sectors. Germany strengthened its place as the largest European country investing in Europe.

Looking ahead
Marc concludes, “The fact that companies from all over the world continue to choose to invest in Europe is evidence that, for now at least, the region retains rich and deep-rooted strengths. The economic climate across Europe will be challenging for some time but investors are now beginning to accept this new environment. The international business community realizes that the European market is too big to ignore. It is acknowledged that Europe retains strong fundamentals that cannot be overlooked and this will help it to remain amongst the top investment destinations in the world.”

Source: Ernst & Young

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