Fifty-six per cent of global investors are planning to grow their presence in Europe in 2017, according to an EY survey on the attractiveness of investing in Europe. This compares with just 36 per cent of investors in May 2016, before the UK's EU membership referendum. While concerns remain about instability in Europe, the 254 global investors surveyed said they value Europe’s “talent, innovation capacity and large, integrated market and production system”.

Investment risks in Europe

The biggest risks to investment decisions in Europe were:

• high volatility in currencies, commodities and capital markets (37 per cent)
• economic and political instability within the European Union (EU), excluding Brexit, (32 per cent);
• and the impact of Brexit (28 per cent).

More than 70 per cent of foreign investors said they have already felt some impact following the UK’s referendum on EU membership. These investors have seen an impact in at least one area of their business operations in Europe and have cited operating margins, cost of purchase and sales, in particular. Companies with a strong presence in the UK were hit the hardest, with 31 per cent reporting an increase in purchase costs and the same percentage identifying operating margin pressures.

Brexit impact on financial services

The financial services sector is the least optimistic about its growth prospects in Europe over the next three years: only 12 per cent of companies expect strong growth, while 6 per cent expect to “slightly reduce” their existing presence in the region. Financial services are also nearly twice as likely as manufacturing firms to identify EU instability (51 per cent) and Brexit (41 per cent) among the top three growth risks, with volatility seen as a much less severe risk, according to the EY's report.

Companies eye relocation to Germany

The survey also found:

• 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.
• Fourteen per cent of foreign investors with a presence in the UK plan to change or relocate some of their European operations in the next three years should the UK leave the European single market - see the graphic below for a breakdown of this figure.
• Germany was identified as the preferred destination for those investors moving out of the UK (54%), followed by the Netherlands (33%) and France (8%).
• 96 per cent of businesses do not feel well-prepared for future uncertainties.

EY's Andy Baldwin said: “The financial impact of Brexit is not confined to the UK. The survey shows that 70 per cent of European businesses we surveyed have been impacted in some way. European businesses and investors need certainty and want clarity on the future trading relationship between the UK and the EU27.”

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CTMfile take: These survey results are reassuring in a way - investor confidence in Europe seems to be stronger than in May last year but investors are carefully watching political and economic risk factors across Europe and in the UK.