Global FDI to fall 10-15% in 2016, road to recovery looks bumpy

​Global FDI flows are expected to drop to between $1.5 and $1.6 trillion in 2016, a fall of 10% to 15% from 2015, before recovering in 2017 and 2018, according to estimates from UNCTAD's latest UNCTAD Global Investment Trends Monitor.

FDI flows have been volatile in recent years, with analysts warning that this uncertainty will have its own negative impact on trade and global value chains. In the meantime, the road to the recovery of global FDI looks rocky, UNCTAD Secretary-General Mukhisa Kituyi said.

"This drop in FDI is troubling, because our global economy urgently needs investment to get it going again," Dr. Kituyi said.

The latest data support estimates that FDI flows are falling, a forecast made last June in the World Investment Report. Declining FDI reflects the fragility of the global economy, the persistent weakness of aggregate demand, sluggish growth in some commodity exporting countries, and a slump in the profits of some multinational enterprises (MNE) in 2015.

"We forecast FDI to pick up in 2017, then to reach $1.8 trillion in 2018, but it will remain lower than the pre-crisis peak," Dr. Kituyi said.

One striking aspect of the analysis is the diversity between the different regions. In Africa, FDI inflows are likely to return to growth in 2016. And after steep falls for the past three years, FDI flows into transition economies are expected to increase modestly too. But in developing Asia and in Latin America and the Caribbean, FDI is expected to decline. In developed economies, FDI grew sharply in 2015, but this growth is not expected to last in 2016.

This diversity holds true for mega-groupings too. For G20 countries, UNCTAD forecasts a fall in FDI flows of between 5 and 10% in 2016. APEC members are also expected to see FDI fall by 15 to 20%. However, BRICS countries could see FDI return to growth, increasing some 10%.

Overall, expectations about short term FDI flows are best described as mildly pessimistic. FDI will decline in both developing and developed countries.