Results of the BusinessEurope Barometer 2025

The EU’s investment attractiveness is declining. Foreign direct investment (FDI) from third countries fell by 66% in 2021 compared to 2019. In contrast, FDI in the United States increased by nearly the same percentage. Moreover, the U.S. Inflation Reduction Act (IRA), a new initiative offering massive support for the industrial transformation of American businesses, could further divert investment activity away from the EU unless the bloc takes concrete steps to improve its investment environment.

BusinessEurope, the confederation of European employers' organisations, has published its annual Reform Barometer, which monitors Europe’s global competitiveness and evaluates structural reforms. Experts from the Confederation of Industry of the Czech Republic actively contributed to the preparation of the barometer.

The document focuses on the impacts of the war in Ukraine and the related disruptions to global supply chains, the sharp rise in energy prices, and the increase in costs of materials and raw materials. According to the Barometer, the past year was extremely challenging for the EU-27, as businesses had to cope with, among other things, higher interest rates increasing the cost of borrowing and a slowdown in demand. Energy-intensive industrial sectors, in particular, are now struggling for long-term survival in global markets.

Fortunately, in recent months, some improvement has been observed, such as easing global inflationary pressures and a decline in wholesale natural gas prices. However, Europe has only few reasons for optimism. Gas prices in the region remain significantly higher compared to other parts of the world. Futures prices for this commodity for the summer of 2025 are four times higher on the continent compared to pre-COVID levels, whereas in the U.S., they are less than twice as high. Businesses therefore face the prospect of persistently elevated energy costs. Europe has also been hit hardest by inflationary pressures, with inflation in the eurozone at the end of last year more than twice as high as in Japan and China, and even exceeding that of the United States.

Key limitations to Europe's competitiveness include not only energy prices but also excessive bureaucratic burdens, which nearly half of respondents consider significantly higher than in other developed countries. Many also perceive that the regulatory burden has increased recently, while the quality of legislation has, conversely, declined. Another major obstacle is the tax system—particularly labour taxation, which is 30% higher than in the U.S. and exceeds the OECD average. In this regard, the Barometer recommends removing excessive regulation in sectors such as energy, the environment, and digital technologies—for example, by placing greater emphasis on impact assessments for new legislation or accelerating permitting processes. The Barometer also highlights the need to reduce labour and capital taxation and to simplify tax administration. A crucial task which remains is to significantly lower energy costs, for example, by reducing related fees and taxes, and to ensure competitive energy supplies.

Innovation is another long-term challenge repeatedly emphasised for the EU. R&D expenditure in Europe stands at around 2.3% of GDP, below the levels of Japan and the U.S., where around 3% of GDP is allocated to R&D. Unfortunately, Europe also lags in the number of new patents and the deployment of broadband infrastructure using fibre connections. Increasing relevant expenditures, improving innovation regulation, and enhancing digital infrastructure are essential. More broadly, it is worth considering whether current initiatives to support green investments genuinely serve their purpose and effectively assist businesses in their transformation.

For more detailed results of the Barometer, click here, and for the its country assessments click here.