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Sharp fall in global foreign direct investment last year

Global foreign direct investment (FDI) inflows declined by 18% in 2012 to a level which was close to the trough reached in 2009, according to the Global Investment Trends Monitor just published by UNCTAD.

Although global FDI nosedived last year, the UK bucked the trend.

The Report puts this down to the uncertainty which has been caused by the weakening macroeconomic environment, with falls being registered for global growth in GDP, trade, capital formation and employment.

What is particularly interesting is that FDI flows to developing economies held up well in 2012, reaching US$680bn, which is the second highest level ever recorded. This meant that developing countries actually received inflows which were US$130bn higher than that received by developed countries.

By contrast, the FDI flows into developed countries fell to a level not seen for ten years, with inflows falling sharply in both Europe and the US. But the UK was one of the few countries which saw a boost in FDI inflows, with a rise of 22.2% in 2012 compared to the previous year. This figure particularly stands out when compared to falls of 35.3% in the US, 96.8% in Germany and 84.7% in Italy.

What are the prospects for this year? UNCTAD is forecasting a moderate rise in 2013 and 2014 as the global economy is expected to make a ‘hesitant and uneven recovery’. With GDP growth, gross fixed capital formation and trade projected to rise gradually, it is thought that transnational corporations (TNCs) will plough some of their record levels of cash holdings into new investments.

On the downside, the Report says that there are significant risks to this tentatively positive scenario, including “…structural weaknesses in major developed economies and in the global financial system, the possible further deterioration of the macroeconomic environment and significant policy uncertainty in areas crucial for investor confidence, including fiscal policy and investment regulations and restrictions.”

Basically “FDI recovery is on a bumpy road” and although FDI into developing countries is expected to hold up, “…promoting FDI for sustainable development remains a challenge.”

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Posted in Foreign Direct Investment, UNCTAD

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