Foreign Direct Investment Set To Fall Dramatically This Year
Foreign direct investment flows look set to fall dramatically this year from the record high levels set in 2007, according to new data from the OECD.
FDI outflows from OECD countries in 2007 leapt over 50% to a record $1.82 trillion from $1.2 trillion in 2006 but are projected to fall sharply in 2008. If a slowdown in merger and acquisitions observed in the first half of 2008 continues, FDI outflows could fall back to $1.14 trillion, below the 2006 level, the OECD says.
FDI inflows to OECD countries rose to $1.37 trillion in 2007, up from $1.05 trillion in 2006 and up slightly from the previous record of $1.29 trillion set in 2000. But FDI inflows are projected to fall back in 2008 to $1.035 trillion.
The projected fall in FDI outflows from OECD countries in 2008 will also impact developing countries.
Based upon the historical relationship between developing country inflows and OECD outflows, the projected 37% drop in OECD outflows in 2008 could result in a decline of around 40% for developing country inflows to around $276 billion from their 2007 record of $471 billion.
The new records set in 2007 for OECD inflows and outflows were helped by the fall in the US dollar against most other major currencies. In addition to greenfield investment and mergers and acquisitions, FDI includes reinvested earnings, cross-border loans and capital transactions between related firms.
The US continued to hold its position as the top OECD investor and recipient of foreign investment in 2007, with $333 billion in outflows and $238 billion in inflows. The UK was second, with $230 billion in outflows and $186 billion in inflows, followed by France with outflows of $225 billion and inflows of $158 billion.
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