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News : EU Economy Last Updated: Jun 29, 2011 - 8:50 AM

Foreign direct investment flows in and out of the EU27 plunged in 2010
By Finfacts Team
Jun 28, 2011 - 4:59 AM

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Figure 1: EU FDI flows and stocks 2005-2010

Foreign direct investment (FDI) flows in and out of the EU27 plunged in 2010 according to Eurostat, the EU's statistics office.

In 2010, EU outward flows decreased for the third consecutive year, down 62% compared with 2009. At the same time, EU inward flows dipped by 75%. Compared with the record peaks reached in 2007, outward flows have decreased five-fold and inward flows eight-fold.

The strong decline is explained by the significant drops recorded with the offshore financial centres (from €89bn in 2009 to €21bn in 2010), the US (from €79bn to €12bn) and Switzerland (from €44bn to disinvestment of €7bn).

Luxembourg, with outflows of €38bn, was the largest investor outside the EU27 in 2010, followed by Belgium (€36bn), Germany (€29bn) and France (€23bn). Luxembourg (€48bn) was also the main recipient of FDI inflows from outside the EU27, ahead of the United Kingdom (€28bn), Ireland (€21bn) and Germany (€14bn). The role of Luxembourg in EU FDI is mainly explained by the importance of its financial intermediation activity.

As in previous years, the EU27 was in 2010 a net investor in the rest of the world, with outflows higher than inflows by €53bn . Among the EU member countries, Belgium was the largest net investor outside the EU27 in 2010, with net investment of €38bn, followed by Sweden (€22bn), the Netherlands (€19bn), France (€15bn) and Germany(14bn). With inflows higher than outflows by €16bn, the United Kingdom was the largest net recipient of FDI from outside the EU27, followed by Ireland (€14bn) and Luxembourg (€9bn). 

FDI inflows include reinvested earnings and because of the US corporate tax regime, US companies leave big cash balances in overseas subsidiaries, which are available for further investment in overseas locations.

€13.5bn of Irish inflows of €21.5bn relate to offshore financial transactions.

At the end of 2009, North America had the biggest share (35%) of non-EU stocks. The United States accounted for about 31% (€1,134.0bn) of total EU outward stocks, and the growth rate (5%) was the same as in 2008. The services sector represented 70% of the EU stocks held in the United States, and most of those came from financial intermediation (39%) and from real estate and other business activities (22%). Manufacturing was also an important sector, accounting for 22% of total EU stocks in the United States, and the main activity here was manufacturing of chemicals and chemical products.

At the end of 2009, the main holder of EU FDI stocks in the US continued to be the United Kingdom, accounting for one quarter of them.

In 2009, the United States provided 39% of all inward investment in the EU. Its share was worth €1,044.1bn at the end of that year. The US thus consolidates its position as the major EU stock investor, investing mostly in the services sector - - which accounted for 79% of all inward investment at the end of 2008.

Switzerland was the second biggest EU stock holder, with €347.9bn - - 10% more than in 2008. Other countries with significant shares of EU inward stocks were Japan, Canada and Brazil.

Japan and Canada invested 10% and 11% more, respectively, in 2009 compared with the previous year. Brazil’s investment had also risen 7% by the end of 2009 - - though this is modest growth compared with the period 2006-2008, when Brazil tripled its stocks in the EU.

Strong decline in EU27 investment flows with the rest of the world in 2010 (pdf) - Country Tables

Foreign direct investment flows still influenced by the crisis - Issue number 25/2011 -  Report

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