European businesses are slashing investment at a pace not seen in over a decade, with the EU's business investment rate falling to 21.8% in the fourth quarter of 2025, according to fresh data from Eurostat. The figure marks the lowest point since 2015 and sits just one percentage point above the all-time low recorded in the aftermath of the 2008 financial crisis.
The investment rate measures the share of gross value added that non-financial corporations—hotels, factories, supermarkets, airlines, and the like—put into tangible assets such as machinery, buildings, and software. It excludes banks and financial institutions, offering a direct window into the real economy's willingness to expand.
The peak came just before the COVID-19 pandemic, in Q4 2019, when the rate hit 26.77%, driven by a surge in intellectual property imports and globalisation dynamics, Eurostat notes. Since then, the trend has been downward, with the current reading barely above the crisis-era trough of 20.93% in Q1 2010.
Where investment is weakest—and strongest
Some of Europe's wealthiest business hubs are among the most reluctant to invest. Luxembourg, Ireland, and the Netherlands all recorded rates below 17%. While Luxembourg's low figure is partly structural—its industrial sector is tiny—Ireland's decline is dramatic: it has lost 27 percentage points in less than a decade. That drop reflects, in part, the unwinding of tax-driven foreign direct investment and the shifting of multinational profits.
At the other end of the spectrum, Hungary and Croatia posted the highest rates in the bloc, both above 28%. Greece has also seen one of the fastest increases since 2015, with its rate rising nearly 10 percentage points, suggesting a recovery in business confidence after years of austerity.
“Business investment is a major determinant of GDP growth. Investment in equipment, software, factories...is clearly behind the growth engine of productivity,” said Antonio Fatas, professor of economics at INSEAD. He described the productivity gap between Europe and the United States—now nearly 2%—as “shocking.”
Why companies are holding back
The European Central Bank (ECB) surveyed 64 leading euro-area firms to understand what is constraining investment. The results paint a bleak picture: 90% of large businesses cited weak demand as the primary drag. More than 80% pointed to low profitability, regulatory burdens, and labour costs. Geopolitical tensions, including tariffs and war-related disruptions, have hit manufacturers especially hard.
Unpredictable climate regulations are also weighing on long-term planning, the ECB found—even more so than the current energy crisis. Firms say they are struggling to navigate a patchwork of green rules that shift with political cycles, making it difficult to commit to multi-year projects. This regulatory confusion comes as the EU pushes for ambitious climate targets, but the lack of a stable framework is undermining business confidence.
The survey did offer one glimmer of hope: anticipated increases in defence spending are widely seen as a potential catalyst. Half of industrial firms and a fifth of services respondents expect higher defence outlays to support their investment over the next three years. This aligns with broader EU discussions about boosting defence budgets amid heightened security concerns, though the impact on overall investment remains uncertain.
The investment slump comes as the EU grapples with a broader budget overhaul that critics say falls short of addressing defence, climate, and enlargement pressures. The European Parliament has demanded an additional €200 billion for the 2028-2034 budget, threatening a veto if its demands are not met. Meanwhile, trade tensions with the United States continue to simmer, with President Trump setting a July 4 deadline for a trade deal and threatening higher tariffs—a move that could further dampen business sentiment in Europe.
For now, the data suggests that European companies are in a wait-and-see mode, reluctant to commit capital until the fog of geopolitical and regulatory uncertainty lifts. Without a sustained rebound in investment, the continent's productivity gap with the US is likely to widen further.
