Foreign direct investment in Europe was at a record level last year in terms of the number of investment projects, according to the EY European attractiveness survey. However, amplified geopolitical concerns have taken their toll, with the overall rate of growth less than in previous years, at 10 per cent, compared to average growth of 15 per cent over the past three years. The report also found that investor sentiment is more buoyant with 50 per cent of investors expecting Europe’s attractiveness to improve over the next year (up from 35 per cent in 2017). The rise of China's popularity for investment and the protracted Brexit negotiations between the EU and the UK means that Europe's status as a favoured investment location is at risk.

EY's Andy Baldwin commented: “Business leaders in Europe need to look at the geopolitical risks that can impact both their export potential as well as how they operate their supply chain across the region. The optimism of 2017 that we had seen the high water mark of populism has been replaced by new fears and uncertainty in Eastern Europe, secession risks in Spain and an expansionist macroeconomic agenda of the new Italian administration.”

Despite concern over the progress of Brexit negotiations, the UK registered only a modest slowdown in FDI growth and retained its position as the top destination for FDI in 2017 by number of projects (1,205). This compares to 6,653 projects recorded in across the whole of Europe. The report underlines the UK's importance to the wider attractiveness of Europe as an investment destination, with the UK still attracting the majority of inbound European investment – especially in relation to the financial and digital sectors. France saw a significant surge of FDI, with a 31 per cent increase year-on-year coming from 1,019 FDI projects in 2017, stimulated by the French government's reform agenda.

Top five investor concerns for Europe

Investors identified the top five perceived risks for investing in Europe in 2018 as the following:

• global and regional geopolitical instability (39 per cent);
• economic and political instability in the EU, excluding Brexit (36 per cent);
• the rise in populist and protectionist feelings among politicians and populations ranks (34 per cent);
• Brexit (30 per cent); and
• competition from emerging markets (26 per cent).