EU trade and investment in the midst of re-globalisation

EU trade and investment in the midst of re-globalisation

EU trade

Fecha: mayo 2024

Raymond Torres and Patricia Sánchez Juanino

SEFO, Spanish and International Economic & Financial Outlook, V. 13 N.º3 (May 2024)

An analysis of EU trade and foreign direct investment flows reveals a relative decline in the EU’s export position in global trade as well as a weakening of foreign direct investment (FDI) inflows, with the EU now a major net exporter of capital to invest in companies located in third countries. Although the EU continues to present a current account surplus, this resilience reflects largely lethargic imports rather than a boom in exports of goods, albeit it is worth noting that Europe has fared better in its trade in services. As with the drop in the market share commanded by European goods exports, the trend in FDI evidences a loss of attractiveness of the EU relative to the US and China. Indeed, a comparison between FDI outflows and inflows reveals Europe as a heavy net exporter of capital, which means a significant share of the savings available in Europe is being used to invest in companies located in other countries. That said, there has been an intensification of trade and investment among member states (intra-EU). The mitigating role played by the single market has had particularly healthy benefits for economies like Spain, where labour and energy costs are relatively low. The advantages of the single market can also be enhanced through measures that boost the investment of excess savings within the bloc. Nevertheless, even in its enhanced form, the single market can only partially mitigate the weakening of the external position of the EU vis-à-vis other economic powers. This highlights the importance of a revitalisation strategy which includes the capital markets union and the deployment of a common European investment budget, as a follow on from Next Generation EU funds.

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