Germany remains Europe’s top destination for foreign direct investment (FDI) despite the number of foreign companies setting up operations in the country falling by almost a fifth in 2023.

According to Germany Trade & Invest, cited by Reuters, other countries such as France or Switzerland have also experienced a drop in FDI levels as companies increasingly go for mergers and acquisitions rather than invest during uncertain economic conditions.

However, pledged investments were of higher value than in previous years. The largest came from BP, which plans to invest €6.8bn ($7.36bn) in two wind farms in the North Sea. In September, London-based data centre provider Virtus announced plans to open a €3bn ($3.22bn) mega-campus project in Wustermark, 12km outside Berlin.

“The majority of countries are facing a downtrend in inward investment projects in 2023,” said Glenn Barklie, Head of FDI Services at GlobalData. According to Barklie, the number of global FDI projects is expected to drop by around 25% this year.

“The scale of the impact differs greatly from country to country,” he continued. “The slippery macroeconomic environment – which started its shaky decline before 2023 – is causing companies to slow their expansion activities. Rising geopolitical tensions, high (albeit now falling) inflation, high interest rates and climate concerns are just some of the reasons impacting investment decisions. A more cautious FDI approach is also expected in 2024.”

The cautious investment environment in Germany is reflected in a survey conducted by the German Chamber of Industry and Commerce (DIHK) in November this year. According to DIHK data involving 3,600 German companies, around one-third (33%) have reported plans to invest abroad amid fears of a recession at home. The IFO Institute, a Munich-based economic think tank, expects the country’s economy to contract by 0.6% in 2023.

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Despite this, Barklie expects Germany’s economy to “bounce back stronger” in 2024.

“Germany’s [situation] is not unique. It will still remain the leading destination for FDI in Europe and one of the top destinations globally,” he concluded.