- German companies to invest EUR 1,200 bn by 2030
- Italian companies to invest EUR 500 bn by 2030
- Eurozone and US the most important destinations for German, Italian and Austrian companies
German and Italian companies are expected to double their foreign direct investment activities by 2030, according to a research paper published today by UniCredit Research, based on a proprietary econometric model. German companies will invest abroad an additional EUR 1,200 bn and Italian companies an additional EUR 500bn. The eurozone and the US will remain major destinations.
According to the findings of the study, an increasing number of European companies do business abroad through foreign direct investment (FDI). Growth in global FDI flows outpaced the increase in worldwide trade volumes by far.
German and Italian multinational enterprises (MNEs) are among the top global players. With an outward FDI stock of nearly USD 1,600bn, Germany ranks third after the US (6,300bn) and the UK (1,600bn). Italian firms invested USD 550bn abroad , while Austrian companies invested USD 220bn.
Commenting on the research, Gianni Franco Papa, Head of UniCredit Corporate & Investment Banking, said: "European Corporates have been at the forefront of this development and constantly increasing their direct investments abroad over the years since the start of the 1990s. For this reason we are reinforcing our international network, with the aim of offering the best possible advice and financial services solutions to our clients to support their international growth".
For both German and Italian MNEs FDI, the eurozone and the US will remain the most important destinations. FDI in China will grow briskly but still not play the leading role. Austrian companies will more than triple their foreign investment activities. Among the Top-10 destinations will be European countries with a strong focus on CEE.
According to UniCredit data, German companies will invest abroad an additional EUR 1,200 bn from 2016 to 2030, hence outward FDI stocks will nearly double over the next 15 years. Major host countries will remain the eurozone with EUR 420bn, followed by the US with about EUR 200bn. Industrialized countries will still be more important destinations in absolute terms (given the higher base as of today) than China which will receive an additional EUR 75bn.Assuming a backlash in globalization and reduced coefficients, German companies will still invest EUR 500bn abroad.
Italian companies will also double their outward FDI stock from about EUR 500bn (based on current exchange rates) to EUR 1,000bn by 2030. As is the case for Germany, the most attractive host region will remain the eurozone with an additional EUR 180bn, followed by the US (EUR 120bn) and China (nearly EUR 50bn). In the risk scenario of "de-globalization", foreign investment activities would still grow by EUR 200bn.
Austrian multinationals will invest an additional EUR 500bn abroad by 2030 , hence, outward FDI stocks will more than triple and even outpace the developments in Germany and Italy (in growth terms). Among the Top-10 destinations will be European countries. In total, Austrian companies will invest EUR 180bn in the eurozone of which nearly half of it goes to Germany. Other important host countries are in CEE: Slovakia, Romania, Czech Republic and Hungary. In a risk scenario, Austrian MNEs would still expand their foreign business by EUR 170bn.
According to the UniCredit's study, 47% of German industrial companies are planning investments abroad in 2016 which is the highest level since the mid-1990s. A similar picture emerges for Italy. These plans are dominated by horizontal FDI motives, while the importance of the cost-savings motive decreased substantially in the last ten years.
Harm Bandholz, Andreas Rees and Thomas Strobel, UniCredit economists and authors of the study affirm: "From an empirical viewpoint, it is undoubtedly true that FDI has been increasing less briskly since the Lehman collapse in 2008. Both companies and consumers are in the process of reducing their debt overhangs and rebuilding their balance sheets. As a result, capex spending in general has remained rather subdued in the last few years. As soon as these cyclical headwinds vanish, FDI activity will resume momentum again". Adding: "In the last few years, a structural shift in the global economy towards services has started. Traditionally, large companies are expected to do more business abroad than smaller and medium-sized ones. The implementation of new technologies may lower fixed and variable costs of international transactions and allow SMEs more international transactions. Further support for global FDI activities may come from investment policy measures. In contrast to often heard arguments, they continued to be directed towards investment liberalization and promotion.