The spread of the coronavirus
pandemic will cause the biggest drop in global foreign direct investment seen this century with flows projected to contract this year by 30 to 40 percent, or between $417 billion and $556 billion, with the demand shock the biggest factor pushing down investment in all sectors, including services, as earnings plummet, a U.N. report said Thursday.
In 2019, global FDI declined by 1 percent to $1.39 trillion, according to U.N. estimates.
“It is now evident that pandemic mitigation efforts and lockdowns around the world will have devastating effects on all economies, independent of their links to global supply networks,” concludes the special issue of the Investment Trends Monitor on the COVID-19 by the U.N. Conference on Trade and Development.
UNCTAD warns the “the demand shock is expected to be deep,” but also points out that ultimately the decline will depend on the “severity and duration” of the pandemic and the scope of the containment measures that governments are forced to put in place.
In addition, it says, it will depend on the nature and scale of of policy packages that most governments are putting in place to support their economies.
The study, which tracks thousands of global multinational enterprises, notes that 61 percent have issued new statements in March, signaling large downward revisions in earnings of 30 percent due to COVID-19 — and adds the downward trend is likely to continue.
Meanwhile, World Health Organization chief Tedros Adhanom Ghebreyesus told an extraordinary summit of G20 leaders — held by video conference: “We are at war with a virus that threatens to tear us apart — if we let it. Almost half-a-million people have already been infected, and more than 20,000 have lost their lives.
“The pandemic is accelerating at an exponential rate,” Ghebreyesus said.
The U.N. report highlights the downward revisions of earnings “are more serious in developed countries, contrary to the situation in early March, with profits revised downward by 35 percent, compared to 20 percent in developing economies.”
James Zhan, UNCTAD director for investment and enterprise, and lead author, told WWD the crisis is being fanned not by supply chains stopping but rather by the serious demand shock.
Zhan said that many small and midsize enterprises based in developing nations — which do not have the financial resources of rich countries to shore up the companies with support packages — could be in dire straits and struggle to survive.