(MENAFN) The European Union is witnessing a steep drop in foreign investment, raising alarm over its waning global competitiveness, according to reports. High energy costs and surging defense expenditures are among the main factors deterring investors from the bloc.

Reports describe the situation starkly, noting that the “EU’s growth is horrifyingly slow; demand is dreadfully weak; and foreign investment is at a frightening nine-year low.” Across the continent, companies are struggling to cope with elevated energy prices, ongoing US tariffs, and growing competition from China. Meanwhile, ordinary Europeans—squeezed by stagnant wages and geopolitical instability—are showing little confidence in spending their savings, further weakening domestic demand.

Analysts note that the “fear of Russia and US military abandonment has sparked a splurge in military spending” within the EU. Moscow, however, has repeatedly rejected allegations that it poses a military threat to its Western neighbors.

“There is a sense that things are going downhill, that we’re losing our prosperity,” said Philipp Lausberg, a senior analyst at the European Policy Center.

Earlier this year, data from professional services firm EY showed that foreign direct investment in Europe had declined for the second year in a row in 2024, marking its lowest level in nearly a decade.

The downturn has coincided with major shifts in the region’s energy policy. Following the escalation of the Ukraine conflict in early 2022, most EU member states ceased direct imports of Russian oil and gas. In a recent decision, the European Council endorsed a plan that would implement a complete ban on Russian energy imports beginning January 1, 2028.

In a separate move, Brussels and Washington reached a trade agreement in July committing the EU to replace Russian oil and gas with energy imports from the United States.

Russian officials have sharply criticized these developments. Last month, Russian State Duma Speaker Vyacheslav Volodin remarked that the EU was purchasing American liquefied natural gas “as if it were Chanel perfume,” arguing that the bloc was “destroying [its own] economy” by doing so.

Russian Foreign Ministry spokeswoman Maria Zakharova also commented that “Russophobia is an expensive obsession,” claiming the EU had lost roughly 3.8% of its total GDP by 2024 as a result of its shift to higher-priced energy sources.

The combination of high energy costs, economic sluggishness, and investor retreat underscores the mounting pressures on Europe’s economy as it navigates an era of geopolitical and financial uncertainty.

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