Global Navigator from KPMG Economics
The Investment Opportunity Index.
December 18, 2025
This edition of Global Navigator introduces the Investment Opportunity Index (IOI). Supply chains are shifting to focus more on resilience than cost. We have identified 20 of the top destinations for foreign direct investment and ranked them across four key domains: economic competitiveness, business conditions, financial and trade infrastructure.
The IOI rankings shift over time, reflecting competitive dynamics among countries. Those that climb in the rankings have improved compared to peer countries which are seeking similar investments, not just in absolute terms.
Two big trends
- Introducing the Investment Opportunity Index. Firms face unprecedented uncertainty that delay investment decisions and complicate global supply chain strategies. The IOI compiles everything from costs and ease of doing business to physical and financial infrastructure. The IOI predicts shifts in foreign direct investment (FDI) up to four years in advance, reflecting long lags in major investments abroad
- Navigating opportunity and risk. Top-ranked countries in the IOI demonstrate institutional excellence, stability, innovation and infrastructure, while lower-ranked countries exhibit struggling economies and institutional weaknesses.
Introducing the Investment Opportunity Index
Firms face numerous uncertainties navigating shifts in trade and energy policy, elevated geopolitical risk and more. A recent survey by the Federal Reserve Bank of Dallas found that more than 30% of firms were seeking or had already established contracts with new foreign suppliers as a hedge against trade policy shifts. When looking at manufacturing firms only, the proportion expands to almost half. The bulk of hedging shifts come through moving supply chains to lower tariffed economies.
The IOI ranks the feasibility of investing in 20 countries leveraging data from 2014 to 2025. The model is estimated using nearly 30 different data sets. Most are publicly available except for two proprietary measures dealing with tariffs and market demand risk.
The purpose of the IOI is to simplify the investment selection process. If a manufacturing firm is exploring opening a new facility in Latin America or Southeast Asia, then the IOI can narrow down potential locations.
Beneath the headline index are four domains:
- Economic Indicators – measures overall economic performance and stability of a country’s economy using macroeconomic data.
- Business Environment – evaluates the ease and risk of operating within a country based on regulatory, judicial, political landscape as well as infrastructure.
- Financial Markets – assesses the development, stability and efficiency of a country’s financial system and its ability to attract and manage investment.
- Trade Environment – examines integration in the global economy via a country’s trade policies, flows and overall openness.
The most impactful drivers of the model are access to maritime ports, market demand risk and return on equity. In short, firms want to ensure a country’s products will be in demand, can be physically brought to market and will be effective investments.
There is a strong alignment with the priorities in the manufacturing industry, as it relies heavily on foundational stability within the foreign country, growing consumer markets to sell products to and supply chain sensitivity affecting raw materials and finished goods. The IOI includes primarily longer-term oriented inputs reflecting the reality that it can take years to develop the relationships necessary to stand-up a manufacturing operation.
Examples
The investment attractiveness of Germany (Chart 1 and Chart 2) and India (Chart 3 and Chart 4) has been trending in different directions and is now near parity. Since the invasion of Ukraine, Germany has declining economic performance and a worsening business environment, in particular, its maritime ports per capita and corporate tax rate have fallen behind its competitors. Both trade and financial markets are flat over the long run.
India is improving as a destination for manufacturing investment due to its economic indicators and financial markets. The country’s business environment is improving from a low base but still lags in most aspects. The trade environment is worsening.
Limitations:
- The IOI was built primarily on data from before the flush of US tariffs in 2025, so this year’s shifts do not carry much weight.
- The business environment variables favor more developed countries as they promote a stable business environment and lower political risks.
- Available published data on emerging economies is limited, excluding Vietnam and Bangladesh.
- Some variables of importance to the IOI either lack length in the series of data, for example the S&P Purchasing Manager’s Index, or have been discontinued, disqualifying them from contribution.
Chart 1: Germany Investment Opportunity Index
Chart 2: Germany Investment Opportunity Domains
Chart 3: India Investment Opportunity Index
Chart 4: India Investment Opportunity Domains
Navigating opportunity and risk
Top ranked countries generally exhibit institutional excellence, stability, innovation and infrastructure. Lower ranked countries usually demonstrate poor economic results and institutional weakness resulting in lower capital injections earmarked for economic development.
Over the past decade, eight countries remained in the top 10 (Table 1). Mexico and Turkey replaced Japan and Germany. Regionally, Asia was fairly flat over the 2015 to 2025 period. Europe, the Middle East and North America all gained positions, while South America fell. That latter was primarily due to lower ranked business environments.
China’s retention of the top spot, despite a declining index value, from 2015 to today is due to strong economic growth relative to the other countries, high levels of private investment and maritime ports. In short, China’s manufacturing ecosystem and infrastructure is more competitive than other countries. China faces the risk of an outflow of production, assuming tariffs remain punitive. Of late, relations have improved with the US.
Argentina fell from the 18th spot to 20th due to a collapse in its return on equity, elevated political instability and unemployment, and a corporate tax rate that comes in last place among the 20 countries. The country is now counting on the US to stabilize its depleted foreign currency reserves which are being used to support the peso.
India is just outside the top 10, climbing from the 20th spot 10 years ago to 11th recently. Despite its nine-position improvement, India is constrained by industrial regulations and challenges like energy grid instability. On the regulatory side, India has withdrawn from more than 60 Bilateral Investment Treaties, which provided third-party dispute resolution, in the last decade increasing judicial risk for companies considering investing.
Turkey jumped nine spots on mixed underlying data. The economic environment has been troubled by sky-high interest rates and inflation. The business environment and financial markets improved with increased port access, greater return on equity and lower market demand risk.
Mexico bounded eight positions benefiting from low-cost production and its proximity to the US. Trade tensions between Mexico and the US have been on the lighter side compared to other major trading partners. Within the index, Mexico was led by a steady increase in return on equity and a decline in its market demand risk in 2017.
The US climbed six spots to the runner-up slot. Much of its ascent was driven by the 2017 corporate tax cut and labor market factors. One of the big drivers of the shift in US trade policy stems from the desire to attract manufacturing activity. That may work in national security related sectors, but a broad boom remains unlikely as the relative cost of manufacturing labor in the US is well above other markets.
Canada slid seven positions from second place in 2015 to today. The decline was smooth and broad-based with economic indicators, business environment and trade slipping, while financial markets were flat. Even prior to trade tensions between the US and Canada, the latter’s IOI ranking was already falling. Despite high tariff rates, most exports to the US qualify for US-Mexico-Canada Agreement (USMCA) exemptions. That means the scheduled renegotiation of the USMCA in 2026 will have major implications for Canada, which ships roughly three-quarters of its exports to the US. Bilateral deals in place of a new USMCA are possible.
Japan plummeted seven positions, falling from the Top 10. A challenged economy and higher cost of labor relative to other countries was the main driver of that decline.
Table 1: Rankings over the last decade
Top-ranked countries in the IOI demonstrate institutional excellence, stability, innovation and infrastructure.
Benjamin Shoesmith
KPMG Senior Economist
Bottom Line:
The Investment Opportunity Index serves as a tool for bringing clarity to the complexities of global capital investment decisions, enabling firms to pinpoint countries and regions that best match their strategic objectives by highlighting both the opportunities and challenges present in each market. By forecasting shifts in FDI up to four years in advance, the IOI offers early signals of investment cycle turning points and delivers timely insights that help organizations adapt to rapidly evolving global conditions.
Disruptive climate events are becoming more the norm. Government debt burdens are growing, pushing fiscal policy to override monetary policy. Changes in governing parties are swinging regulatory and immigration policies, causing medium- and long-term investments to require higher hurdle rates to compensate for the added risk.
Global forecast
Global economic growth is forecast to accelerate to 3.4% in 2025 before decelerating to 3.2% in 2026 and 3.1% in 2027. Global growth in 2027 is forecast to be the weakest since the pandemic. Global inflation continues to cool on lower oil prices.
Most central banks have completed their rate cutting cycles and adopted more hawkish stances in recent months. That puts the US at a disadvantage for attracting capital. The linkages of the global financial system are tight, so the Fed cannot move too far from other central banks before feeling ill effects. As central banks reach an inflection point their impact on one another becomes more pronounced.
Global government debt loads are still accumulating, now at higher long-term interest rates. Japan and the UK have been feeling pressure at auctions for longer-dated securities, with the former hitting record yield highs for several maturities. As debt stress continues to mount, the risk of default will increase debt term premia, which is the additional compensation investors require for holding longer-date securities than a series of short-term securities. That will exacerbate countries’ existing debt woes.
We still expect a peak effective tariff rate on US imports of 13.5% which considers tariff mitigation strategies, such as Foreign Trade Zones, seeking exemptions and sourcing from lower tariffed countries. Geopolitical risks are still elevated, now with an escalation in Venezuela.
Prospects by region:
- Growth in Asia is forecast to accelerate to 4.9% in 2025 before decelerating to 4.4% in 2026 and 4.3% in 2027. Chinese growth is expected to slow in the out years of the forecast on slower export growth, private consumption and government spending. Marginal interest rate cuts will be used by the People’s Bank of China to stimulate flagging demand. Policymakers worry this may worsen existing manufacturing oversupply problems through increased capital investment. Most countries in the region are expected to benefit from companies shifting supply chains strategies in response to tariffs. Emerging economies within the region are performing better than more mature economies.
- Growth in Europe is forecast to slow to 1.6% in 2025, 1.3% in 2026 and 1.6% in 2027. The European Central Bank has indicated that its rate-cutting cycle is complete, while marking up growth expectations. Further cuts by the Bank of England are expected to stimulate private spending, as tighter fiscal policy crimps public spending and softens price pressures. Defense spending will boost output in Germany; other countries will be unable to match fiscal spending increases. European leaders are considering lending Ukraine funds that were seized from Russia. Russia remains an existential threat.
- Growth in the Middle East and Africa region is forecast to accelerate to 4.1% in 2025 and 3.8% in 2026 and 2027. The region is pivoting away from its reliance on oil toward sectors like trade, transportation and tourism. The Middle East has been active in many proposed trade and investment agreements recently. That should provide buffer from lower oil prices due to increased output by the Organization of Petroleum Exporting Countries.
- Growth in North America is forecast to decelerate to 1.9% in 2025, climb to 2.6% in 2026 and slow again to 1.9% in 2027. US output has consistently surprised to the upside in 2025, despite the onset of tariffs. Tax refunds in 2026 are forecast to boost consumer spending because they are treated as windfall gains. AI-related investment and wealth gains have accounted for between one-quarter to one-half of economic growth in the US this year. The Canadian labor market has been a bright spot, along with surprise growth to the upside. The Bank of Canada is no longer expected to cut rate further. Mexico will likely avoid a technical recession and has recently announced tariffs up to 50% on 1,400 goods imported from China.
- Growth in Oceania is forecast to accelerate to 1.8% in 2025, 2.1% in 2026 and 2.3% in 2027. Australian growth carries the region and is forecast to improve in the out years of the forecast. The recovery of the private sector, via both consumption and investment in AI, are tailwinds. One more interest rate cut is expected from the Reserve Bank of Australia by the end of 2026; although if recent resurgent inflation proves durable policymakers have indicated rate hikes would be on the table.
- Growth in South America is forecast to slip from a high-water mark of 3% in 2025 to 2.1% in 2026 and 2.2% in 2027. The fluctuating growth is a byproduct of inconsistent Brazilian output. Brazil is the largest mover for the region, as it still has extremely high short-term interest rates. Brazil’s central bank is weighing when to restart its cutting cycle with the policy rate sitting at 15%. Argentina has accepted aid from the US in servicing debt payments to the International Monetary Fund but is not out of the woods yet. The country faces a weakening peso and depleted foreign currency reserves that threaten economic progress.
Global Outlook Forecast - December 2025
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