This article focuses on developed European Union (EU) countries. In our previous article “Making a Case for Investing in the Emerging Europe,” we included 10 developing EU countries (Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Romania, Slovakia and Slovenia) and will not duplicate those here. Developed EU countries for this article include the following:
|Austria (47)||Belgium (38)||Denmark (61)|
|Finland (63)||France (11)||Germany (6)|
|Greece (58)||Ireland (53)||Italy (13)|
|Luxembourg (107)||Netherlands (28)||Portugal (56)|
|Spain (16)||Sweden (39)||United Kingdom (10)|
The parenthetical number next to each country’s name reflects their global ranking in terms of Gross Domestic Product (GDP). GDP for developed EU countries totaled $17.13 trillion USD in 2016.
Germany has the largest developed EU economy, 6th in the world, totaling $3.979 trillion. Luxembourg is the smallest developed EU economy, 107th in the world, totaling $58.74 billion. Yet Luxembourg’s residents are developed EU’s wealthiest at $100,877 per capita GDP. Greece is the poorest among developed EU countries at $26,965 per capita GDP.
Developed EU Faces Economic Uncertainty in the Short Term
EU member states have adopted the internal framework of a single market with free movement of goods, services, and capital. Internationally, the EU aims to bolster Europe’s trade position and its political and economic weight. The EU economy is still recovering from the 2008-09 global economic crisis and the ensuing sovereign debt crisis in the eurozone in 2011.
The bloc posted moderate GDP growth 2014-2016, but the recovery has been uneven. Some EU member states (Ireland, Spain) have recorded strong growth while others (Finland, Greece) are struggling to shake off the recession. The growth rate for the developed EU was 1.89% in 2016, ranging from a 0.1% low in Greece to a 4.2% high in Ireland.
Real GDP in the euro area has grown for 15 consecutive quarters and employment is growing at a robust pace. Unemployment continues to fall, although it remains above pre-crisis levels. Private consumption is still the engine of the recovery, while investment growth remains subdued. The European Commission expects euro area GDP growth of 1.6% in 2017 and 1.8% in 2018. This is revised up slightly from the Autumn Forecast (2017: 1.5%, 2018: 1.7%) on the back of better-than-expected performance in the second half of 2016 and a rather robust start to 2017.
Despite its fair performance, the EU economy is vulnerable to a slowdown of global trade and bouts of political and financial turmoil. In June 2016, the UK voted to withdraw from the EU, the first member country ever to attempt to leave. Uncertainty about the timing, scope, and implications of the UK’s exit could hurt consumer and investor confidence and dampen UK and eurozone growth if trade, investment, and demand suffer.
Among the World’s Largest and Most Technologically Advanced Regions
The developed EU benefits from a large, well-educated labor force with 233.7 million working-aged citizens in total. This ranks third in the world according to the CIA’s World Factbook.
The industrial base in developed EU is broad, diverse and technologically advanced. Key industrial sectors include:
- ferrous and non-ferrous metal production and processing
- metal products
- petroleum, coal, cement, chemicals and other materials
- transportation, including aerospace, rail transportation equipment, passenger and commercial vehicles
- construction equipment, industrial equipment, shipbuilding, electrical power equipment, machine tools and automated manufacturing systems
- electronics and telecommunications equipment
- fishing, food, and beverages
Ireland – Growth Rates Have Slowed, Yet the Economy Remains Strong
In 2010, Ireland’s budget deficit reached 32.4% of GDP – the world’s largest deficit as a percentage of GDP. In late 2010 the Irish government accepted a $92 billion bailout loan package from the EU and IMF. In three short years, Ireland exited this bailout program, benefiting from its strict adherence to deficit-reduction targets and success in refinancing a large amount of banking-related debt.
In 2014 and 2015, Ireland’s GDP grew by 8.5% and a whopping 26.3% respectively. This growth has been fueled because Ireland has been successful in attracting multinational enterprises, in large part because of its low corporation tax of 12.5% and a talented pool of high-tech laborers.
In recent years, Ireland has focused on improving its education system, with an extra focus on matching curriculum to ensure graduates develop skills to secure employment upon graduation. The government has promised free education to all residents if they cannot afford to pay.
Ireland’s investments in education may actually help transform higher education into a growth industry. According to this article in the Irish Times, “most Irish universities have recorded increases in applications from international students; at UCC the surge is up by some 40 percent. Meanwhile, UK universities, worried at losing out on lucrative EU research funding, are beating a path to Irish colleges to discuss potential partnerships and alliances.”
Luxembourg – a Small Country but a Financial Powerhouse
Since the turn of the century, the Luxembourg Government has implemented policies and programs to support economic diversification and to attract FDI. The government focused on key innovative industries that showed promise for supporting economic growth:
- information and communications technology
- health technology, including biotechnology and biomedical research
- clean energy technology
- space technology
- financial services technology
Luxembourg remains a financial powerhouse – the financial sector accounts for more than 35% of GDP. This is due to the exponential growth of the investment fund sector through the launch and development of cross-border funds (UCITS). Luxembourg is the world’s second-largest investment fund asset domicile, after the US, with $4 trillion of assets in custody of financial institutions.
Luxembourg’s economy continues to evolve and flourish, posting a strong projected GDP growth rate at 4.5% in 2017-2018, far outpacing the European average of 1.8%. As measured by per capita GDP, Luxembourg is the wealthiest EU country at $100,877 in 2016 (second globally to Qatar, which reported $129,700 per capita GDP in 2016).
Developed EU Welcomes Foreign Investment and is a Good Target for Global Expansion
Every developed EU country is among the top third for welcoming foreign investment, while all but 4 countries are in the top 20% (source: World Bank’s Ease of Doing Business Index). Denmark is the easiest (3) place to do business in the region, followed by the United Kingdom (7), Sweden (9) and Finland (13).
Interestingly, Greece (61) is the most difficult developed EU country for doing business. As a slow growth country (+ 0.1% GDP in 2016), one would think they would find ways to stimulate FDI.
If you are considering expanding your business overseas in developed EU or other global areas, contact us at Blueback Global, to schedule a complimentary discussion.