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Germany hit hard as foreign investment falls in Europe, EY survey shows

The skyline with its financial district is photographed on early evening in Frankfurt

By Mark John

LONDON (Reuters) - Foreign direct investment (FDI) into Europe fell 4% last year, with Germany seeing a sharp 12% drop in projects amid concern over its economic slowdown and energy security, a survey by professional services group EY found.

It was the first annual fall in the number of European FDI projects registered since the COVID-19 pandemic, after gains seen in both 2021 and 2022. Foreign investment into the region is now 14% lower than at its peak in 2017.

Companies surveyed cited volatile energy prices, turbulent domestic politics and the steady stream of new European regulation in areas ranging from artificial intelligence, sustainability and data protection among their concerns.

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EY EMEIA Area Managing Partner Julie Teigland said the sheer pace of regulation coming on-stream was creating daunting compliance challenges in particular for smaller companies.

"The last 12 months will go down as probably the largest period of regulation in EU history," said Teigland.

"We are not saying regulation is bad ... but allowing SMEs (small and medium-sized enterprises) the time to deal with it is going to be important," she added.

European Union leaders agreed in principle this month to a wide-ranging set of reforms aimed at revitalising the bloc's economy but exposed differences on freeing up the money required to do so.

Those reforms ranged from deepening the EU's single market and fostering more research to creating a unified energy market.

In the EY survey, France topped the foreign investment list even though its tally of investment projects fell by 5% - albeit still creating 4% more jobs compared to the year before.

Britain overtook Germany for second place, seeing a 6% gain in FDI projects in 2023. That came after a comparable fall the year before amid concerns about trade snags and labour shortages linked in part to Brexit.

The war between Russia and Ukraine hit FDI in bordering countries hard: Romania saw a 13% fall, Finland 32%, Latvia 31% and Lithuania 40%.

(Reporting by Mark John; Editing by Emelia Sithole-Matarise)