14 Oct 10 - Quarterly update on global investment trends

Quarterly update on global investment trendsGlobal FDI flows declined in the second quarter, pointing to stagnant FDI activity in 2010. New potential risk factors, such as currency wars and trade protectionism, may seriously affect FDI flows, says UNCTAD´s new Global Investment Trend Monitor.

The fourth Global Investment Trends Monitor provides the international investment community with an up-to-date assessment of global flows of foreign direct investment (FDI) and an early indication of the trends for the full year 2010.

As governments are gradually winding down stimulus packages and in some cases reducing public investment in the face of mounting deficits and debt levels, private investment in the form of FDI does not appear ready to step up to the plate.

Global FDI flows actually declined again in the second quarter of 2010, after four quarters of low-level recovery in the wake of the financial crisis. FDI inflows in the second quarter were down by 25 per cent compared to the previous quarter and by 17 per cent compared to the same quarter of last year, with UNCTAD´s FDI Global Quarterly Index falling from 113 to 85.

Early estimates for 2010 show a picture of stagnant FDI activity for the year. That would imply that 2010 flows will still be 25 per cent less than the average pre-crisis levels, and 40 per cent less than those in the peak year of 2007, even though FDI may increase modestly towards the end of this year.

The low results in the second quarter were due to a marked decline in intra-company loans - one of the three components of FDI flows - as parent firms called back loans from their affiliates, especially those in the United States and United Kingdom. Reinvested earnings - usually a stable component of FDI - tumbled by 52 per cent as firms repatriated a larger share of the earnings of their foreign affiliates. Total FDI inflows to the Russian Federation and China increased by 30 per cent and 20 per cent respectively, while flows to developing and transition economies, as a whole, experienced decreases.

The second quarter´s sharp contraction shows the continued fragility of FDI inflows, with a new FDI boom remaining a distant prospect given that new risk factors such as currency wars and the related escalation of trade protectionism may seriously affect FDI flows.



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