Investment Attractiveness in European Countries
Bottom Line: The most recent update of our Country Insights model places Denmark as the leading performer in Europe, according to the Investment Attractiveness Index. In contrast, Italy ranks at the bottom among its regional peers.
Source: Continuum Economics
The Investment Attractiveness Index weights three pillars of our Country Insights model; namely, external adjustment capacity, institutional robustness, and medium-term growth potential. In our latest update for the second quarter of 2023 (here), Denmark, Poland, and Norway emerge as the strongest countries in the region, while Spain, France, and Italy stand at the bottom of the ranking.
Denmark’s high rank can be attributed to its strong performance in the first two pillars: external adjustment capacity and institutional robustness. According to data from the International Monetary Fund (IMF), in 2022, the Nordic country increased its current account surplus from 9% in 2021 to 13% (as percentage of GDP), largely due to the impact of higher international freight rates. Similarly, Denmark has a diversified economy, with its top three products categories (pharmaceutical products, nuclear reactors/boilers/machinery and mechanical appliances, and mineral fuels/oils) accounting for less than 35% of its exports in 2022. The country's strong political institutions, coupled with low domestic and international political risks, largely justify its high score in the institutional robustness pillar.
Italy’s weaknesses are reflected in the medium term growth potential and institutional robustness pillars. Low research & development expenditure, a record-low birth rate in 2022, and having the lowest employment rate in the European Union in 2022 (here) have negatively influenced the country’s medium term growth potential pillar. Institutional robustness was mostly affected by Italy’s high government debt (higher than 140% of GDP in 2022) and elevated inflation. On the upside, the country is likely to a see greater political stability after a series of domestic crises in recent years.