EU capital flows : latest developments from a global perspective (2024) : seeking stability in an adverse environment : executive summary.
Date: 2025-02-14
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union
Subjects: capital movement, direct investment, economic consequence, economic integration, economic stabilisation, foreign investment, geopolitics, inflation, monetary policy, world economy

Executive summary  

EU Capital Flows:  

Latest Developments from a Global 
Perspective (2024) 
Seeking stability in an adverse environment 

Written by Cinzia Alcidi and Farzaneh Shamsfakhr, 
with contributions by Judith Arnal  and Damir Gojsic. 
December – 2024 

 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN COMMISSION 

Directorate- General for Financial Stability, Financial Services and Capital Markets   
Directorate E – Financial stability, sanctions and enforcement  
Unit E1 – EU/Euro area financial system  
Contact: FISMA-E1@ec.europa.eu 

European Commission 
B-1049 Brussels 

Page 2 of 10 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN COMMISSION 

Executive summary 

EU Capital Flows:  
Latest Developments from a 
Global Perspective (2024) 
Seeking stability in an adverse environment 

Page 3 of 10 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Manuscript completed in December 2024 

LEGAL NOTICE 

This document has been prepared for the European Commission however it reflects the views only of the authors, and 
the  European  Commission  is  not  liable  for  any  consequence  stemming  from  the  reuse  of  this  publication.  More 
information on the European Union is available on the Internet (http://www.europa.eu). 

PDF  

ISBN 978-92-68-24726-6 

ISSN 2811-969X  doi: 10.2874/2254219  

EV-01-25-001-EN-N 

Luxembourg: Publications Office of the European Union, 2025 

© European Union, 2025 

The reuse policy of European Commission documents is implemented by the Commission Decision 2011/833/EU of 

12 December 2011 on the reuse of Commission documents (OJ L 330, 14.12.2011, p. 39). Except otherwise noted, 

the reuse of this document is authorised under a Creative Commons Attribution 4.0 International (CC-BY 4.0) licence 

(https://creativecommons.org/licenses/by/4.0/). This means that reuse is allowed provided appropriate credit is given 

and any changes are indicated. 

For  any  use  or  reproduction  of  photos  or  other  material  that  is  not  under  the  copyright  of  the  European  Union  (*), 

permission must be sought directly from the copyright holders. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EU Capital Flows: Latest Developments from a Global Perspective (2024) 

Executive summary  

The  European  Union's  economic  resilience  continues  to  be  tested  by  a  volatile  global  The 
European Union's economic resilience continues to be tested by a volatile global environment. 
While inflationary pressures have eased and monetary policies have begun to stabilise, interest 
rates remain significantly higher than pre-pandemic levels. This has created both opportunities 
and challenges for growth and labour markets, with the EU demonstrating notable resilience. 
However, escalating conflicts, rising trade tensions, and a surge in protectionist policies have 
introduced  substantial  uncertainty.  These  geopolitical  and  economic  shifts  threaten  global 
stability, hinder growth prospects, and disrupt capital flows. Amid this turbulence, the need for 
a stronger and more integrated single market has become increasingly urgent, providing the 
foundation for the EU's sustained economic integration and competitiveness. 

This study examines the key trends and dynamics of global and EU capital movements with a 
focus  on  recent  years  through  mid-2024.  It  highlights  the  shifts  in  foreign  direct  investment 
(FDI), portfolio flows, and broader financial integration within and beyond the EU, alongside 
their implications for global economic stability. 

Global trends and recent developments in capital flows 

The COVID-19 pandemic and Russia's invasion of Ukraine have deeply impacted the global 
economy and the EU. In particular, the war has intensified uncertainty and heightened security 
concerns, further intertwining political and economic developments. The adaptation to such a 
riskier  and  adversarial  global  environment  has  spurred  changes  at  multiple  levels,  raising 
critical  questions  about  whether  recent  shifts  in  capital  flows  (and  current  accounts,  as 
explained  below)  are  tied  to  short-term  economic  adjustments,  or  indicative  of  longer-term 
trends in the size and composition of capital flows within the EU and globally.  

Current accounts in flux 

In 2023, the euro area reaffirmed its position as a global leader in current account surpluses, 
a trend which continued into 2024, after a deficit in 2022. This contrasts with Russia, whose 
surplus plummeted to historic lows in 2023 under the combined pressures of sanctions and 
declining  energy  export  revenues.  Similarly,  China’s  surplus  fell  below  2020  levels  after 
peaking  in  2022,  reflecting  weaker  external  demand  and  structural  economic  shifts. 
Conversely, ASEAN-5 economies and Switzerland maintained relatively stable surpluses.  The 
US remained the world's largest current account deficit economy, underscoring its enduring 
reliance on foreign capital and imports. 

Foreign direct investment: shifting patterns 

Over the past two decades, advanced economies, including the euro area, have consistently 
recorded net FDI outflows driven by their multinational corporations investing abroad; however, 
recent  developments  point  to  a  less  clearcut  picture  for  Europe.  Widespread  divestment 
operations in the euro area, by both domestic and foreign investors, have substantially reduced 
the  size  of  inbound  and  outbound  FDI  flows,  raising  concerns  about  the  attractiveness  of 
traditional  EU  foreign  investment.  Recent  trends  also  reveal  a  reversal  for  traditional  FDI 
recipients such as China and ASEAN-5. In 2023, China recorded positive net outflows due to 
a  sharp  decline  in  inbound  FDI  driven  by  geopolitical  tensions  and  increasing  domestic 
regulatory hurdles. 

Portfolio investment: diverging paths 

Portfolio investment flows reveal contrasting trajectories. The euro area transitioned from net 
inflows (2005-2013) to persistent net outflows from 2015 onwards, except for temporary inflows 
during a period of high financial volatility in 2022. Meanwhile, the US continued to attract robust 
net inflows, which surged in 2023 to levels not seen since 2008, underscoring its safe-haven 
status. The UK displayed high volatility, mostly driven by operations by domestic rather than 

5 

 
                   
 
 
EU Capital Flows: Latest Developments from a Global Perspective (2024) 

foreign investors, while China’s offshore portfolio investment expanded but remained modest 
relative to other global players.  

Other investment: a volatile landscape 

Other investment flows have been marked by volatility, with a sharp but steady decline since 
2007, primarily due to deleveraging efforts by European banks. In 2023, the euro area and the 
US recorded net outflows, in contrast to net inflows in the UK and other advanced economies. 
China shifted from substantial outflows in 2020-2021 to net inflows in 2022 and then to near-
zero  inflows  by  2023,  reflecting  its  managed  approach  to  cross-border  financial  flows  amid 
changing global conditions. 

Official reserves: divergent strategies 

Distinct trends in official reserves highlight the varying roles of currencies and financial policies. 
Both the US and the euro area maintain minimal official reserves, leveraging the global role of 
their currencies, and their changes are minimal. By contrast, fixed exchange rate countries, 
like  Switzerland,  experience  more  frequent  reserve  adjustments.  In  the  US,  following  the 
expansionary monetary policies of 2021, and the reserve adjustments in response to the dollar 
strength and rising interest rates, changes slowed in 2022-2023. A notable exception in 2023 
was Switzerland's reserve reduction after the collapse of Credit Suisse, which illustrates how 
domestic financial shocks can ripple through official reserve holdings. 

Recent developments in intra-EU capital flows and integration  

Intra-EU capital flows are critical for the integrity and proper functioning of the single market. 
As geopolitical tensions rise and external security threats intensify, the single market's ability 
to foster investment, financial integration and risk absorption are gaining renewed significance. 
Meanwhile,  traditionally  overlooked  aspects,  such  as  reliance  on  foreign  actors  to  ensure 
domestic  payments,  are  drawing  increasing  scrutiny,  spurred  by  economic  security 
considerations.    

Shifting patterns in intra-EU cross-border investment   

Recent trends in intra-EU financial flows reflect significant changes in the EU's economic and 
financial  landscape.  After  a  peak  in  2020,  with  asset  flows  reaching  historical  highs  by  late 
2021, these flows sharply declined from mid-2022, largely due to the collapse of intra-EU FDI 
and a reduction in portfolio investment. Yet, by mid-2023, portfolio investment showed strong 
signs of recovery, even as other types of investment continued to plummet, signalling a notable 
shift in the composition of intra-EU flows. A concerning trend is the persistent decline of intra-
EU FDI, traditionally a key pillar of the EU’s financial integration Since 2018, FDI flows within 
the EU have steadily fallen, marked by increased volatility and are now at historically low levels. 
This  trend  mirrors  a  similar  downturn  in  extra-EU  FDI,  suggesting  a  broader  contraction  in 
global investment dynamics and raising questions about the EU's ability to sustain financial 
interconnectedness in the face of changing geopolitical and economic conditions. 

Resilient financial integration and risk sharing  

Despite  these  challenges,  financial  integration  within  the  euro  area  has  demonstrated 
resilience. Viewed against the backdrop of historical trends and the scale of recent economic 
shocks, the euro area's financial integration remains robust. Risk-sharing mechanisms have 
notably improved since 2020, particularly within the euro area. The credit channel, supported 
by  national  fiscal  policy  measures  and  by  EU-level  initiatives  (like  SURE  and  NGEU)  in 
response to the COVID-19 crisis, has been the primary driver of this improvement. EU transfers 
and  cross-border  investments  have  also  played  critical  roles,  with  capital  markets  notably 
contributing to shock absorption in ways that contrast with their limited effectiveness during the 
euro area financial crisis. 

Regulatory  barriers  within  the  EU  nonetheless  continue  to  hinder  cross-border  investment. 
Measured by the OECD, these obstacles, while modest, remain significant, particularly those 
related  to  business  establishment  and  operations.  Statistical  analyses  suggest  room  for 

6 

 
 
 
 
 
EU Capital Flows: Latest Developments from a Global Perspective (2024) 

improvement,  echoing  business  surveys  that  identify  regulatory  restrictions  as  ongoing 
challenges to fostering intra-EU investment. 

Stabilising trends in the FDI networks of EU Member States  

The recent shifts in FDI within the EU highlight the importance of understanding the structural 
dynamics  underlying  these  investments.  On  the  basis  of  firm-level  data  and  estimates,  we 
constructed a detailed network of inward FDI flows for each Member State, examining both the 
role  of  special  purpose  entities  (SPEs)  and  the  ownership  structures  of  non-SPE  FDI  to 
differentiate between immediate and ultimate investor locations.  

The analysis shows that the total stock of inward FDI in the EU rose from EUR 13.4 trillion in 
2018 to EUR 14.7 trillion in 2022, following a sharp rebound in 2021 after a dip in 2020. Around 
half of this stock originated from non-EU countries (EUR 8.1 trillion), with the remainder coming 
from  EU-27  countries  (EUR 6.6  trillion),  a  consistent  trend  over  the  years.  SPE-related  FDI 
represented less than a third (29 %) of total inward FDI in 2022, down from nearly 50 % in 
2018. This marked decline, with SPE-related FDI stabilising at around 30% since 2020, signals 
a reduced reliance on SPEs, likely due to tighter regulatory oversight and shifting corporate 
strategies. Indirect FDI – investment rerouted through intermediary destinations – also saw a 
sharp decline in 2021, settling at approximately 5 % of real FDI (excluding SPEs) by 2022. This 
stabilisation  suggests  that  less  investment  is  being  routed  through  intermediary  countries 
before reaching its final destination. 

From a sectoral viewpoint, the finance and insurance industries dominate FDI as both a source 
and  a  destination,  with  holding  companies  playing  a  significant  role.  In  2022,  within 
manufacturing,  the  foreign  pharmaceutical  sector  was  prominent,  likely  due  to  COVID-19 
vaccine production rather than to a broader structural shift. 

Payment systems in transformation 

Payment  systems  in  the  EU  are  undergoing  profound  transformations,  propelled  by 
international players, including US Big Tech firms, expanding their reach within the EU’s single 
market and the emergence of innovative business models. Merchants are increasingly pushing 
for cheaper payment methods, showing a strong preference for cards despite a noted decline 
in  their  usage  since  2021.  E-commerce  continues  to  grow  robustly,  with  31 %  of  online 
purchases in late 2022 crossing borders within the EU. 

Regulatory  measures  like  the  Interchange  Fee  Regulation  have  successfully  reduced 
interchange  fees  for  card  transactions,  although  trends  in  merchant  service  charges  and 
scheme  fees  remain  mixed.  At  the same  time,  national  payment  schemes  have  maintained 
competition with international card networks, while cross-border instant payment initiatives are 
gaining momentum. Complementing these developments, EU authorities are progressing with 
plans  for  a  Digital  Euro,  designed  to  coexist  with  commercial  bank  money  and  to  diversify 
payment solutions. 

The  use  of  the  euro  in  global  trade  invoicing  has  increased  since  2020,  but  mostly  in  EU 
exports, and it does not appear directly linked to a receding dominance of the USD. Major shifts 
in global payment systems, induced by sanctions against the push by China and Russia to 
promote the yuan have primarily affected the USD with limited immediate impact on the euro. 
Still, as efforts by China and Russia to de-dollarise intensify, the risk of further fragmentation 
in global payment systems grows, with potential repercussions not only for trade but also for 
global financial flows. 

Shifts in extra-EU capital flows and declining FDI trends 

EU capital flows have undergone significant changes in recent years. Record highs in extra-
EU acquisition of assets (capital outflows) and incurrence of liabilities (capital inflows) observed 
in 2021 and early 2022 were abruptly reversed by mid-2022. Both EU investment abroad and 
foreign  investment  into  the  EU  have  since  declined  sharply,  with  divestment  particularly 
noticeable in the category of FDI. This retraction reflects rising geopolitical tensions, economic 
uncertainty, and changing global dynamics. Extra-EU FDI assets have seen large divestment 

7 

 
 
 
 
 
EU Capital Flows: Latest Developments from a Global Perspective (2024) 

operations since 2022, while portfolio investment assets have grown dramatically, continuing 
a trend that began in 2016 and partially replacing FDI in scale. Similarly, extra-EU FDI liabilities 
have transitioned to a two-regime pattern. After a decade of robust capital inflows, FDI liabilities 
have been barely positive since 2018, with major divestment waves in 2018 and post-2022, 
primarily  led  by  US  residents.  By  contrast,  portfolio  investment  inflows,  particularly  in  debt, 
have remained stronger and increased steadily. 

The evolving EU-US FDI linkages highlight a broader trend of simultaneous FDI divestments 
and rising portfolio investment, signalling a shift away from traditional greenfield investment 
towards financial transactions. Additionally, UK residents have been divesting significantly from 
EU assets since 2022, predominantly in the category of other investment, likely influenced by 
central bank tightening. EU residents have likewise divested from UK assets across all classes, 
especially FDI. 

US  policies,  notably  the  Inflation  Reduction  Act,  appear  to  have  driven  a  surge  in  US 
manufacturing FDI and reshoring activity plans in 2022 and 2023, including investment from 
the EU. However, preliminary data for 2024 suggest this trend is slowing, leaving its long-term 
effects uncertain and raising doubts about the overall effectiveness of the policy. 

Finally, growing concerns over foreign interference in critical sectors have prompted stricter 
FDI  screening  measures  in  the  EU.  While  these  measures  are  justified,  they  risk  delaying 
processes and discouraging strategic investment by EU-based companies with foreign links. 
Striking a balance between security and openness remains crucial, as FDI continues to serve 
as a key driver of technological transfer and production in the EU. 

Conclusions 

The examination of recent developments in global and EU-level capital flows results in three 
overarching conclusions and policy considerations. 

Rising global risks 

While macroeconomic conditions are showing signs of stabilisation, global risks are escalating. 
Trade tensions, increasing resort to protectionism and security concerns threaten to disrupt 
foreign  exchange  markets  and  destabilise  capital  flows.  In  addition,  shifts  towards  a  more 
fragmented international monetary and payments system, with China and the yuan likely to be 
at the forefront of alternatives, risks amplifying inefficiencies and vulnerabilities in global trade 
and finance. 

Challenges to the EU’s position as an FDI hub  

The EU’s position as a leading FDI hub seems under strain. Persistent divestment operations 
reflect dynamics in global investment and structural hurdles within the EU. External factors, 
such as the changing strategies of multinational corporations to use FDI channels for financial 
arbitrage rather than for real economic investment exacerbate this issue. Structural concerns 
further  compound  the  problem.  For  decades,  the  EU  has  benefited  from  substantial  FDI 
inflows,  particularly  from  the  US,  which  have  fostered  strategic  partnerships  and  enabled 
positive technology transfer. This long-standing pattern is now at risk.  

Between openness and security in a changing global order 

Geopolitical  tensions,  greater  fragmentation,  and  the  resurgence  of  protectionism  pose 
fundamental trade-offs for the EU. Foremost is how to reconcile its deep-rooted commitment 
to  openness,  which  is  a  cornerstone  for  trade  and  investment,  with  the  pressing  need  to 
safeguard economic security and enhance strategic autonomy. 

Addressing  these  interconnected  issues  requires  a  multifaceted  and  forward-looking  policy 
approach.  Safeguarding  and  revitalising  the  single  market  should  remain  at  the  core  of  the 
efforts.   

8 

 
 
 
 
 
 
EU Capital Flows: Latest Developments from a Global Perspective (2024) 

GETTING IN TOUCH WITH THE EU 

In person  
All over the European Union, there are hundreds of Europe Direct information centres. 
You can find the address of the centre nearest you at: https://europa.eu/european-
union/contact/meet-us_en  

On the phone or by email 
Europe Direct is a service that answers your questions about the European Union. You 
can contact this service: 
- by Freephone: 00 800 6 7 8 9 10 11 (certain operators may charge for these calls), 
- at the following standard number: +32 2 299 96 96, or 
- by email via: https://europa.eu/european-union/contact_en  

FINDING INFORMATION ABOUT THE EU 

Online  
Information about the European Union in all the official languages of the EU is available 
on the Europa website at: https://europa.eu/european-union/index_en 

EU publications 
You can download or order free and priced EU publications from: 
https://publications.europa.eu/en/publications.  

Multiple copies of free publications may be obtained by contacting Europe Direct or your 
local information centre (see https://europa.eu/european-union/contact/meet-us_en ).  

EU law and related documents 
For access to legal information from the EU, including all EU law since 1952 in all the 
official language versions, go to EUR-Lex at: http://eur-lex.europa.eu  

Open data from the EU 
The EU Open Data Portal (http://data.europa.eu/euodp/en) provides access to datasets 
from the EU. Data can be downloaded and reused for free, for both commercial and non-
commercial purposes. 

9 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
E
V
-
0
1
-
2
5
-
0
0
1
-
E
N
-
N

E
V
-
0
1
-
2
0
2
0
-
1
6
6
-
E
N
-
N