WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

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By Robert Stehrer, Scientific Director

The investment landscape in recent years has been shaped by geopolitical tension, trade fragmentation and an intensification of industrial policy competition. Multinational companies have increasingly prioritised short-term risk management over long-term strategy, particularly in sectors that are sensitive to national security and supply-chain reconfiguration. The CESEE region is no exception to this and, insome respects, has fared worse than the global average. Preliminary data show that inward FDI flows to the region declined by around 25% last year, weighed down by elevated energy prices, ongoing conflict and rising trade barriers.

Long-term FDI trends point to a structural shift, especially in EU-CEE, that is caused by a variety of factors, including rising labour costs together with a labour-market tightness driven by demography, and the fading out of the ‘extended workbench’ model. In addition, investor confidence has been badly dented by rising uncertainty, and greenfield investment pledges – a key indicator of genuine productive investment – have shown a significant weakening across most countries of the region, which is particularly concerning for longer-term growth prospects.

This compounds a deeper structural challenge: the CESEE countries need to develop a new growth model. Though there may be signs of structural change, the region remains oriented toward cost-based, assembly-type activities in global value chains, and businesses are not yet moving up the value chain in ways that would naturally give rise to internationally competitive multinationals. The near-shoring, digital and green transition narratives offer medium-term opportunities, but seizing them will require sustained policy efforts on competitiveness, governance and skills.

These challenges are partly reflected in overall investment patterns. According to the recently published EIB Investment Survey for 2025, CESEE firms allocated 28% of investment to intangible assets like R&D, training and software. This is unchanged from 2024 and is below the EU average of 35%.

Innovation activity is nonetheless strong: 34% of CESEE businesses report innovating – broadly in line with the EU average of 32%. Awareness of climate transition risks is also rising: 45% of companies in CESEE flag this, up from 40% the previous year and above the EU average of 36%, though fewer regard it as an opportunity (only 15%, versus 27% in the EU on average). In practice, however, 91% of CESEE firms have taken steps to cut greenhouse gas emissions – a figure that is on a par with the EU.

The clearest gap lies in digital adoption: while over half of EU businesses use multiple advanced digital technologies, the same is true for only 44% of CESEE companies; meanwhile, the figure for generative AI adoption stands at 31% versus 37% in the EU. Quality FDI inflows – inflows that aim at technology and knowledge transfer, skills upgrading and training, integration into higher value-added segments of global value chains, R&D and innovation spillovers – are key in the drive to narrow these gaps.

A relatively new phenomenon that warrants closer attention is intra-CESEE FDI, which is growing – though it remains modest, relative to flows from Western Europe and, increasingly, Asia. A core group of businesses from Czechia, Hungary, Poland and Slovakia (the Visegrád 4) and Slovenia – particularly in the banking, energy, retail and telecoms sectors – is expanding across Southeast Europe and the Western Balkans, often through foreign-owned affiliates.

Most EU-CEE countries have seen their outward investment stock grow since 2019, and the structural conditions for further expansion are present: the rising wages in advanced CESEE countries are creating a natural push toward lower-cost neighbours; trade links are deepening; and institutions in the Western Balkans are improving. Yet data gaps and the dominance of Western and Chinese capital mean that intra-CESEE FDI tends to remain below the radar.