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UN Predicts Falling Foreign Direct Investment

Tightening credit is seen as a key factor in decline.

GENEVA — Amid worldwide economic turmoil, total foreign direct investment is forecast to decrease 20 percent this year to $1.6 trillion from a record $1.83 trillion in 2007, according to a United Nations report.

“The strong tightening of credit standards and the rise in risk premiums, especially for buyouts by collective investment funds, are likely to subdue cross-border M&As,” according to the “World Investment Report” by the UN Conference on Trade & Development.

The study said mergers and acquisitions in the first half of 2008 were 29 percent lower than in the second half of last year.

In 2007, foreign direct investment to rich industrialized countries, spurred by unprecedented levels of M&A activity, totaled $1.2 trillion, compared with $940 billion the year before, and in emerging economies reached a record $500 billion. Emerging countries, especially in Asia, are expected “to be less affected” by the financial crisis, UN analysts said.

In 2007, China was the top recipient of foreign direct investment among emerging economies, with $83.5 billion, up from $72.7 billion in 2006. Foreign direct investment in the U.S. reached $232.8 billion last year, boosted partly by the low value of the dollar against key foreign currencies, and in the same period the U.S. also remained the single largest source country, with foreign direct investment to the rest of the world of $313.8 billion.