Foreign direct investment (FDI) in Central, Eastern and Southeast Europe has fallen in 2024 to levels not seen since the height of the COVID-19 pandemic, with German investors retreating sharply and Chinese capital dominating new pledges, according to a new report from the Vienna Institute for International Economic Studies (wiiw). 

wiiw research finds a 44% drop in the number of greenfield investment projects announced in the region in the first three quarters of 2024 compared to the same period last year, while the value of pledged investments fell 39%, a troubling trend for a region heavily reliant on external funding to drive economic growth. 

“The crisis in German industry and geopolitical uncertainties are now making their full impact felt on the region,” said Olga Pindyuk, an economist at wiiw and the report’s author. 

The decline reflects a broader malaise in European industrial investments, across both EU member states and the Western Balkans. The data reveals a marked decline in new foreign greenfield investments across much of the region, with the exception of Moldova, which recorded growth. 

Among EU member states, Bulgaria, Poland, and Estonia experienced some of the sharpest reductions, with investment commitments slashed by half. Albania, despite a tourism-driven boom, saw an 88% drop in the number of greenfield investment projects.

Only eight countries reported increased foreign capital inflows compared to the previous year, with Estonia, Lithuania and Kosovo leading the way. In contrast, Montenegro, Ukraine and Bosnia & Herzegovina saw faster declines in the value of pledged investments than in the number of projects, suggesting a shift toward less capital-intensive service-oriented investments.

German slowdown takes its toll 

Germany, long a cornerstone investor in the region, has sharply curtailed its commitments. The number of German projects announced fell from 171 to 96 — a 44% drop — while the capital pledged tumbled by an even steeper 67%, from over €9bn in 2023 to just €3bn this year.

Meanwhile, Austrian investors, historically among the region's most active, have scaled back the number of their projects from 34 to 15. Yet Austria has pledged 20% more capital — €965mn compared to €804mn last year—indicating a focus on fewer but more substantial projects. 

“While we are seeing German investors turning away from Eastern Europe and towards the US, Austria remains strongly committed,” said Pindyuk, adding that Austrian capital is flowing mainly to Romania, Hungary and Bulgaria.

Chinese becomes leading investor 

Despite its own economic difficulties, China has emerged as the largest investor in new projects across the region, surpassing Germany. Chinese investments in the region fell by just 30% in terms of capital pledged, compared to Germany’s 67% plunge. Notably, Chinese projects remain highly capital-intensive, often focusing on sectors such as electric vehicles and batteries.

Romania has attracted the most Chinese projects this year, while Slovakia is set to receive the largest inflow of Chinese capital, driven by commitments like the Beijing-based car manufacturer SAIC’s plan to produce electric vehicles in the country. “The value of Chinese investments in the region now exceeds those of German projects by a factor of eight,” the report notes.

However, the overall influence of Chinese capital remains limited. “Chinese FDI stocks in the region account for just 1% of the total, compared to around 70% from EU countries,” Pindyuk said, stressing that Europe still dominates the FDI landscape despite short-term volatility.

Uncertainty ahead 

The report warns that the downturn could deepen. FDI inflows were particularly weak in the third quarter of 2024, coinciding with heightened uncertainty ahead of the US presidential elections and a broader slowdown in global investments. 

“Investors seem to have had even less confidence in the third quarter of 2024 than at the height of the COVID-19 pandemic or after Russia’s large-scale invasion of Ukraine,” said Pindyuk.

The US is increasingly drawing German and other European investors away from Emerging Europe, spurred by attractive incentives under the Inflation Reduction Act and lower energy costs. German investments in the US, for instance, have surged, with capital commitments now nearly three times higher than those made in Central and Eastern Europe during the same period.

The long-term trends point to structural challenges for the region. Pindyuk noted that the “extended workbench” model — where Central and Eastern Europe serves as a production hub for Western companies — is showing signs of obsolescence. “This growth model may have had its day,” she said.

Countries like Slovakia, which have historically relied on the automotive sector, have seen some of the weakest FDI inflows relative to GDP. The report calls for a pivot towards investments in education, research, and industrial policy to secure sustainable growth.