Bloomberg News

Eastern Europe to See Decline in FDI in 2012, Institute Says

June 06, 2012

Inflows of foreign direct investment to the 22 countries of eastern Europe will fall this year as growth slows in western Europe, according to the Vienna Institute for International Economic Studies.

“On average, FDI flows are forecast to be 3 percent lower than in 2011,” the institute said in an e-mailed report today. “Expectations are supported by plummeting first-quarter FDI flows and greenfield projects.”

While the euro region narrowly avoided recession in the first quarter, latest data suggest its economy is shrinking again. The Group of Seven nations agreed yesterday to coordinate their response to Europe’s turmoil, which has put at least eight of the 17 euro-area members into recession and damped European demand for foreign goods.

The projected decline in FDI in eastern Europe this year comes after investment rose 26 percent in 2011 to 96 billion euros ($120 billion), which was still below the peak years for the region of 2006-2008, the institute said.

“Large countries like Russia, Turkey and Kazakhstan received the major part of the recent FDI boom, though Hungary, Serbia and Slovakia also significantly improved their positions,” the institute said in the report.

The share of investment in manufacturing for the region is declining, while growing in finance and business services. Financial flows that are used for tax optimization have become a major part of investment.

“As an extreme example, about two-thirds of Russian FDI inflows and outflows are to and from Cyprus and other tax havens,” the institute said.

To contact the reporter on this story: Aaron Eglitis in Riga at aeglitis@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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