Global Foreign Direct Investment Falls by Nearly 50% Amid Pandemic

The coronavirus pandemic has decimated global markets and trade, plunging the world economy into a deep recession not seen since the Second World War. Now eight months into the pandemic, some of the damage is becoming increasingly evident, and as cases continue to soar with a vaccine still far from reach, the damage to global trade and financial markets will likely continue into the foreseeable future.

According to a recent UN trade report, foreign direct investment (FDI) fell by a staggering 49% globally in just the first half of 2020, compared to the same time only a year prior. The report projects that FDI will be down by an overall 40% in 2020, which will be predominantly driven by growing fears of an even deeper recession. Data released by the UN Conference for Trade and Development (UNCTAD) shows that FDI flows to the US fell by 61% to $51 billion, while flows into European economies turned negative for the first time in history, falling from $202 billion to minus $7 billion.

However, it appears that China has been relatively immune to the collapsing trend, as FDI flows remained somewhat stable. In fact, for the first nine months of the year, FDI into China actually rose by 2.5%. The majority of FDI flows into China were comprised of electronic commerce services, research and development, and specialized technology services.

UNCTAD director of the investment and enterprise division James Zhan noted that the decline in FDI was significantly more drastic than what was expected. He projects that flows will fall anywhere between 30% and 40% by the end of the year, and will remain moderately subdued by 5% to 10% in 2021. The forecasts are based on FDIs that are cross-border mergers and acquisitions, project finance deals, as well as new greenfield investment projects.

Information for this briefing was found via the UNCTAD. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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