Foreign Investment in Eastern Europe and Balkans Falls Sharply

Foreign Investment in Eastern Europe and Balkans Falls Sharply

Image: APA/THEMENBILD/HARALD SCHNEIDER

 

New investments in Eastern Europe and the Balkans fell by 44% during the first three quarters of 2024 compared to the same period last year, according to a report from the Vienna Institute for International Economic Studies (wiiw).

Olga Pindyuk, a wiiw economist and the report’s author, says the drop is down to the crisis in Germany’s industrial sector and ongoing geopolitical tensions, which are “now taking a full toll on the region.”

The hardest-hit nations include Bulgaria, Poland and Estonia, where investment activity has halved. Meanwhile, Albania, despite benefiting from a boom in tourism, has seen new investments nosedive by 88%.

Yet, some countries have bucked the trend. Eight nations, including Estonia, Lithuania and Kosovo, have reported higher foreign capital inflows compared to last year, despite the overall drop in project numbers.

German Investments in Decline

Germany’s contribution to the region has taken a significant hit. The number of projects announced by German firms has fallen by 44%, from 171 to 96. The total value of these investments has plunged to €3bn, down from more than €9bn during the same period in 2023.

Austria Increases Spending

Austrian businesses, which have long been key players in Eastern Europe, have also scaled back on project numbers, from 34 to 14. However, they plan to spend 20% more, raising their investments from €804m in 2023 to €965m this year.

Despite this increase, the figure remains a fraction of 2022 levels, amounting to just one-fifth of that year’s total. Romania, Hungary and Bulgaria are expected to see the biggest benefits from this rise in Austrian spending.

“While German investors are shifting their focus to the United States, Austria remains deeply engaged in Eastern Europe and is likely to invest more there than in the US despite ongoing challenges,” Pindyuk explained.

China Holds Its Ground

China continues to be the region’s largest investor, even though its commitments have fallen. Chinese investments have dropped by 30% – a relatively modest decline compared to Germany’s 67% plunge in allocated capital.

However, China’s overall share of foreign direct investment (FDI) in the region is still small, at just 1%. In contrast, EU member states account for around 70% of the region’s total FDI stock, according to the wiiw database.

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