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MACRO ANALYSIS: Downward Trend In Direct Investment Inflows Across EZ Since 2022

MACRO ANALYSIS
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Direct investment inflows have fallen across the four major Eurozone economies since the start of 2023, with Germany and France seeing the largest decreases relative to the start of 2019.

  • We have previously highlighted Bundesbank commentary on subdued German FDI inflows, which will likely be contributing to the unfavourable labour productivity developments in Europe’s largest economy (see here). The latest bout of political uncertainty provides another headwind for attracting foreign capital.
  • Since the pandemic, Spanish GDP growth has clearly outperformed the likes of Germany, France and Italy. Although direct investment inflows (4Q rolling sum) as a percentage of nominal GDP are higher in Spain than the other three economies (1.8% in Q2 2024, versus 1.0% in Germany, 0.4% in France and 1.2% in Italy), the downward trend suggests it has not been a key driver of this outperformance.
  • Instead, we point to widely cited tailwinds from strong tourism activity, high levels of inward migration and improving productivity growth as more important factors.

 

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Direct investment inflows have fallen across the four major Eurozone economies since the start of 2023, with Germany and France seeing the largest decreases relative to the start of 2019.

  • We have previously highlighted Bundesbank commentary on subdued German FDI inflows, which will likely be contributing to the unfavourable labour productivity developments in Europe’s largest economy (see here). The latest bout of political uncertainty provides another headwind for attracting foreign capital.
  • Since the pandemic, Spanish GDP growth has clearly outperformed the likes of Germany, France and Italy. Although direct investment inflows (4Q rolling sum) as a percentage of nominal GDP are higher in Spain than the other three economies (1.8% in Q2 2024, versus 1.0% in Germany, 0.4% in France and 1.2% in Italy), the downward trend suggests it has not been a key driver of this outperformance.
  • Instead, we point to widely cited tailwinds from strong tourism activity, high levels of inward migration and improving productivity growth as more important factors.