Martin Kaspar is head of business development at a German Mittelstand company in the automotive industry. E-mail: martin.georg.kaspar@googlemail.com

The global economic landscape is still marred by geopolitical tensions, fracturing supply chains and uncertainty. Looking to 2025, it seems unlikely this will change. Global value chains, having transmitted economic shocks around the world, were the starting point for a more negative narrative on globalisation. They arguably even contributed to a shift towards de-globalisation and regionalisation. 

More places are becoming less attractive as investment locations. The Middle East is teetering on the brink of a full-blown regional war, which could destabilise the wider region. The US–China trade war is resulting in both nations adopting a highly protectionist stance. While the US boasts a large domestic market, it is highly leveraged, politically divided and purposefully departs from the international rules-based system towards a new era of isolationism. China’s toxic combination of overcapacities and weakening domestic demand is bound to result in a wave of retaliatory tariffs, if China continues to try offloading excess capacity abroad. Not to mention the conflict over Taiwan waiting to erupt, all of which makes it the place you don’t want to sink your money into.

In contrast, Europe — despite its sluggish growth — remains a pretty safe destination. Ironically, its tighter global regulations (such as climate, money laundering and know-your-client) and rising complexity of doing international business (sanctions regimes and protectionism) create a counter-intuitive competitive advantage. As damaging as all these factors can be for business, Europe’s core competency is its ability to navigate complex foreign markets. This is a vital skill in a fracturing world. Europe also remains a powerhouse of innovation and technology, with world-class infrastructure and a highly skilled workforce.

The old continent’s economic malaise is largely self-inflicted, stemming from the near exclusive focus on climate policy, at the expense of everything else. Easing these constraints will spark an economic recovery. The first signs of policy-makers adopting a less strident approach to ESG can already be observed. When Belgium held the EU presidency earlier this year, its prime minister Alexander de Croo stated that “to compete with the rest of the world, we need an industrial policy”. With a more balanced approach to sustainability, a lot of pent-up demand and investment is about to be released.

European markets present an unexciting, but safe location. Stability, innovation and demand (fortified by purchasing power) provide a compelling rationale. Lastly, as Estonia and Singapore illustrate, small is beautiful — even in economic terms. And ‘region’ rather than ‘global’ will likely be the keyword of 2025.

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This article first appeared in the December 2024/January 2025 print edition of fDi Intelligence