Global investors continue to have strong investment appetite in Europe despite current geopolitical and financial market volatility, with 56% of investors planning to grow their presence in Europe over the next three years, according to the EY 2017 European attractiveness survey – Plan B for Brexit.
This contrasts with the findings from the EY survey conducted in May 2016, which found that only 36% of European investors had a positive investment outlook for Europe.
The report says that investors cited instability on the continent as their primary concern in respect to future investment plans.
“However, Europe’s talent, innovation capacity and large, integrated market and production system are still valued by global investors,” the report noted.
Of the 254 global investors surveyed, high volatility in currencies, commodities and capital markets was identified as the biggest risk to investment decisions in Europe (37%), while economic and political instability within the European Union (EU), excluding Brexit, (32%) and the impact of Brexit (28%) were identified as the second and third biggest risks respectively.
EY area managing partner for Europe, Middle East, India and Africa Andy Baldwin said: “It is encouraging that the investors we are tracking continue to have strong investment appetite in Europe despite the instability and mixed geopolitical environment. However, investor patience is finite. Europe’s historical investor appeal was built on certainty and predictability. Europe is in danger of developing an emerging market ‘geopolitical risk profile’ without commensurate returns. For the foreseeable future, pure economic factors will vie alongside political considerations in influencing final investment decisions.”
The study found that heightened geographic and political risks across Europe and the UK are prompting 1 in 10 companies with a presence in Europe to review their geographical footprint.
The UK’s EU referendum result is a far bigger concern for foreign companies established in the UK (33%), compared with those that are not (15%), the report added.
Companies not established in the UK cited geopolitical and wider EU instability (31%), coupled with the slowdown in trade flows (30%) as more urgent concerns.
Nearly 14% of foreign investors with a presence in the UK said they plan to change or relocate some of their European operations in the next three years should the UK leave the European single market.
Overall, 11% plan to modify their UK presence in Europe following Brexit. Germany was identified as the preferred destination for those investors moving out of the UK (54%), followed by the Netherlands (33%) and France (8%).
The survey report noted that financial services (FS) firms are the least optimistic about their growth prospects in Europe over the next three years: only 12% expect strong growth, while 6% expect to “slightly reduce” their existing presence in the region.
FS firms are also nearly twice as likely as manufacturing firms to identify EU instability (51%) and Brexit (41%) among the top three growth risks, with volatility seen as a much less severe risk, the report added.