Sweden Faces Sharp 19% Drop in Foreign Direct Investment Amid European Competition

In 2025, Sweden experienced a significant 19% decline in foreign direct investments (FDI), a stark contrast to the 7% average decrease across Europe. This drop reduced Sweden’s annual investment projects from 69 to 56, placing the country 17th among European nations for foreign investment – a ranking that lags behind neighbors like Finland, which rose 14% to 91 projects, now holding the 12th spot.

Sectorally, foreign investments are pivoting towards fast-growing and strategic areas such as artificial intelligence, energy transition, and defense. Europe saw an 84% surge in defense-related investments, generating nearly 7,000 new jobs driven largely by the war in Ukraine and NATO-related uncertainties. However, Sweden recorded no foreign defense investments in 2025, likely due to its established domestic defense industry.

Magnus Kuchler, Sweden’s country manager for EY, highlighted the critical need for improving Sweden's long-term competitiveness by enhancing conditions like labor access and investor terms to regain investment momentum. Notably, Indian investments in Sweden nearly tripled since 2024, while German investments dropped sharply from 13 to 4 projects.

Looking ahead, Sweden’s recent NATO membership is seen as a potential catalyst to attract more foreign investments and reverse the downward trend. Yet, the country must address competitive pressures and sectoral shifts rapidly to reclaim its position in Europe's investment landscape.