The annual European Attractiveness Survey shows foreign direct investment was surprisingly steady last year, but says the picture at the end of 2009 will be starkly different.
The investment community views Europe as more stable and relatively safer than the rapidly developing BRIC countries (Brazil, Russia, India and China), but the long-term trend suggests global capital projects will continue to shift from west to east and from north to south.
"Emerging regions are not providing the absolutely safe ground international investors are looking for. Yet, the engine of growth in the global economy is moving east, propelled by a combination of commodity production and the advent of a new Asian middle class," says the report, which is based on a survey of 809 international decision-makers.
Just over half of those surveyed were of European origin, and the report notes a tendency to invest closer to home until the global financial storm has played itself out. The report says investors cannot currently afford to take risks by investing in dynamic emerging markets, and this uncertainty has benefited Europe.
Western as well as Central and Eastern Europe are neck-and-neck as the "safest" regions, and China, which last year was in pole position as the most attractive region in which to establish operations, has slipped to third place. North America, India, Russia and Brazil are the next most attractive regions.
However, when it comes to the most attractive regions for the next three years, Western Europe slips to fifth place. Top of the table is Central and Eastern Europe, followed by China, India and Russia. Looking at the bigger picture, investors expect the next Google or Microsoft to come from Shanghai or Mumbai rather than Paris or Berlin.
China and India are best positioned to return to double-digit growth, according to the report, and China was rated second-highest among all regions for its ability to address the crisis.
"Many companies have suspended geographical and market expansion and acquisition," said Marc Lhermitte, a partner at Ernst & Young and author of the report.
"But, the true picture of how the global recession has hit inward investment has yet to emerge. Investment decisions for 2008 have been made many months before the downturn hit, which explains why in 2008 Europe secured as many FDI projects as the year before. We expect 2009 to tell a very different story," he said.
