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Global Investment Flows to Drop 40% as Coronavirus Spreads

Initial projections were based on data limited to February and expectations that East Asia would bear the brunt of the immediate economic impact - but with the virus spreading worldwide and with many countries in lockdown mode, a far greater shock on supply and demand looks inevitable, it said.
Foreign Direct Investment flows are liable to drop by 30 to 40 per cent during 2020, into next year, due to the ongoing COVID-19 pandemic, reflecting a far more severe economic blow that initially projected. This is according to the latest investment trends monitor report, by the United Nations Conference on Trade and Development (UNCTAD). 

Initial projections ranging between 5 to 15 per cent were based on data limited to February and expectations that East Asia would bear the brunt of the immediate economic impact - but with the virus spreading worldwide and with many countries in lockdown mode, a far greater shock on supply and demand looks inevitable, it said. 

The report says that ultimately, the decline will depend on the severity and duration of the pandemic across different regions and countries, and the scope of containment measures that Governments are forced to put into place. 

“Importantly, it will also depend on the nature and scale of policy packages that most Governments are now putting together to support their economies”, the report added, “which will determine the duration of the recession and the speed of the recovery.” 

Earnings guidance by companies that make up UNCTAD’s Top 100 list of transnational corporations – a bellwether of foreign direct investment trends – confirms a rapid deterioration of prospect. 57 per cent of those companies which previously warned that the pandemic would upset their supply chains have since declared that it will drag down sales as well. 

On average, the world’s top 5,000 multinational enterprises – which account for a significant share of global Foreign Direct Investment – have revised their 2020 earnings estimates by an average of 30 per cent, UNCTAD said, adding that “the trend is likely to continue”. 

Hardest hit are the energy and basic materials industries with losses at -208 per cent for energy, with the additional shock caused by the recent drop in oil prices, airlines (-116 per cent) and the automotive industry (-47 per cent).  However, the number of other sectors that expect to feel the blow of a global slump in demand is growing rapidly. 

Overall, it said, profit guidance from multinationals in developed countries have been revised downwards by 35 per cent since the start of the pandemic, compared to 20 per cent in developing countries. 

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