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UN report: Global FDI set for moderate rise after decline in 2019

Global foreign direct investment, or FDI, slightly declined in 2019 as political unrest in Hong Kong and uncertainty surrounding Brexit shooed away investors, but a marginal recovery in 2020 is in the cards, according to a report published by the United Nations Conference on Trade and Development, or UNCTAD.

Investors around the world deployed a total of $1.39 trillion in foreign direct investments in 2019, down from the $1.41 trillion recorded in 2018. The UN trade body attributed this to weaker global macroeconomic performance and uncertainty among investors driven, among other things, by trade tensions between major world economies.

For 2020, UNCTAD is expecting global FDI flows to increase "moderately" due to a projected improvement in global economic growth. "High geopolitical risks and concerns about a further shift towards protectionist policies temper expectations," it said.

In 2019, FDI flows to Hong Kong dropped 48% to $55 billion as the city was rocked by months of pro-democracy protests for most of 2019. Meanwhile, FDI in the U.K. fell 6% to about $61 billion as the lack of clarity regarding Brexit affected Britain's economic outlook in the run-up to the December 2019 elections.

The volume of FDIs coming into developed countries stayed at "a historically low" level in 2019, falling 6% to an estimated $643 billion, the UNCTAD said. While flows to the U.S. were stable at $251 billion, foreign direct investments in the EU were down 15% to $305 billion.

"The trend for developed economies was conditioned by FDI dynamics in the European Union," the report said.

A seeming outlier among developed economies was Germany, which saw FDI inflows in 2019 almost triple as multinational enterprises extended loans to shore up their overseas affiliates amid sluggish growth worldwide.

Investment flows into developing countries were steady at $695 billion in 2019, weighed down by a 6% decline in investment in developing Asia. Inflows to China were steady at $140 billion, while FDI in Singapore surged 42% to $110 billion.

Cross-border mergers and acquisitions reached in 2019 its lowest level since 2014, plunging 40% to $490 billion, with the services sector recording a 56% decline, UNCTAD said.

"The underlying FDI trend, which removes the volatility caused by one-off transactions and intra-firm financial flows, was up 5% – a marginal change representing a continuation of the stagnation observed over the decade," the UN report said.

Modest growth in the world economy and waning trade tensions would support a marginal increase in FDI flows globally in 2020, according to the UN trade body. "However, expectations are tempered high geopolitical risks, concerns about a further shift towards protectionist policies and the 22% decrease of announced greenfield projects – an indicator of future trends," it said.