The Strategist

OECD: Foreign direct investment flows show greatest fall since 2013

11/03/2020 - 02:36

Global foreign direct investment in the first half of 2020 was $364 billion, which is the lowest level since 2013. Compared to the second half of 2019, it fell by 50%. The United States, Switzerland and the Netherlands experienced the strongest decline, while France and Spain were also significantly affected by the pandemic, with increased foreign investment.
The global volume of foreign direct investment (FDI) in the first half of 2020 decreased by 38% compared to the same period last year, and by 50% - compared to the second half of 2019, according to OECD estimates. FDI of $364 billion is the lowest indicator for a half year since 2013. In January-March 2020, compared to the last quarter of 2019, the decline was 41% (to $227 billion), in April-June investment fell by another 39% (to $137 billion). OECD points out that at the end of the year the decline in direct foreign investment may exceed 40% - this is exactly what was expected in the spring of 2020.

Earlier, the UN Trade and Development body UNCTAD presented its assessment of FDI. Its experts estimated that global direct investment in the first half of 2020 decreased by 49% compared to the same period in 2019 and amounted to $399 billion.

It should be noted that the downward trend in investment flows has been observed over the last five years.

The reasons now include a decline in corporate profits and increased uncertainty due to the pandemic. In particular, the OECD refers to Refinitiv's analytics for companies from the S&P 500 index, whose revenues fell by 13% in the first and 31% in the second quarter of this year (a 19% decline is expected in the third, the dynamics are given in annual terms).

Investment inflows to developed countries in the first half of the year, compared to the second half of 2019, fell more sharply than the world average - by 74% to $128 billion. This is mainly due to (in addition to lower investments in the US) their outflow from Switzerland (minus $98 billion), the Netherlands (minus $97 billion) and the UK (minus $30 billion). In contrast, Germany, France, Spain and Sweden have seen their investments grow by more than $10 billion compared to July-December 2019. In non-OECD G20 countries, incoming FDI declined by 30%.

As for outward investment, outward flows from OECD countries decreased by 43% to $251 billion, mainly from Japan, Canada and Italy, while FDI from Luxembourg ($84 billion versus $39 billion), Germany ($49 billion versus $16 billion) and the USA ($66 billion versus $51 billion) showed growth. In China, outgoing investment remained comparable: $47 billion vs. $51 billion.