Brexit Stops European Recovery in its Tracks
Negative Impact on UK Economic Performance
There has been a slump in worldwide cross border greenfield investment in 2016, according to a report recently released by ING. In the first three quarters of this year, foreign non-financial investments, excluding mergers and acquisitions, were 0.5 percent lower than the same period last year.
According to the report, the strong growth of greenfield investment in 2015—when it was up nine percent—was nothing more than a rebound from the sharp contraction in 2014, when it was down 14 percent. Greenfield investment is still lower than before the global economic crisis, not only in monetary terms but also relative to GDP.
India has overtaken China as the most popular destination for greenfield foreign direct investment (FDI) and Indonesia is the rising star. Asia is still the main destination for FDI.
Western Europe provides a counterweight to the contraction in other European regions. After the start of the global economic crisis, FDI in this region shrank only in 2009. Indian and Chinese investors are ever more present in Western Europe.
The UK is the star performer in Western Europe but Brexit will change that. It is already weighing on FDI into the UK. Based on the inflows during the first nine months of 2016, inward greenfield FDI for the year will be a third lower than in 2015.
“In our view,” the report concluded, “the worse is yet to be seen.”
Coal and oil are among the biggest FDI losers as far as sectors are concerned. Germany has seen the largest decline in FDI into coal. Only in the UK and Poland is greenfield FDI into coal up.
The report sees an increase in foreign investment into the renewables industry. “That’s the flip side of the European trend away from traditional power sources,” said the report.
Business services and real estate are other industries bucking the overall negative trend in Europe.
SIDEWAYS BREAKTHROUGHS, STALLED TRANSITIONS
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