Global foreign direct investment (FDI) plunged by 49% in the first half of 2020 from the same period a year ago and is on course to fall as much as 40% for the year, driven by fears of a deep recession, the United Nations (UN) said on Tuesday.

FDI flows to European economies turned negative for the first time ever, falling to -$7 billion from $202 billion. Flows to the United States fell by 61% to $51 billion, the UN Conference for Trade and Development (UNCTAD) said in a report.

The International Monetary Fund (IMF) had earlier slashed this year’s economic forecast for Asia last week. Global FDI fell to $399 billion as multinationals postponed investments to preserve cash.

“Global FDI flows for the first half of this year went down by close to half. It was more drastic than we expected for the whole year,” James Zhan, director of UNCTAD’s investment and enterprise division, told a news conference.

The flows are expected to decline by 30% to 40% this year and “moderately” in 2021, by 5% to 10%, Zhan said.

The figures cover cross-border mergers and acquisitions, new greenfield investment projects and project finance deals. Industrialised countries, which normally account for some 80% of global transactions, were hardest hit, with flows falling to $98 billion, a level last seen in 1994, the report said.

Among major FDI recipients in 2019, flows declined most strongly in Italy, the United States, Brazil and Australia.

China was bucking the trend, Zhan said. “Their FDI flows remain relatively stable. For the first half of the year the decline was really modest and in fact according to the latest data, for the first nine months altogether this year FDI into China increased by 2.5%,” he said.

Most FDI investment in China was in electronic commerce services, specialised technology services, and research and development, Zhan said.

The International Monetary Fund slashed this year’s economic forecast for Asia, reflecting a sharper-than-expected contraction in countries like India, a sign the coronavirus pandemic continues to take a heavy toll on the region. While the IMF upgraded next year’s growth forecast, it warned the recovery will be sluggish and patchy with countries dependent on tourism seen taking a particularly hard hit.

“Fear of infection and social distancing measures are dimming consumer confidence and will keep economic activity below capacity until a vaccine is developed,” the IMF said in a report on the Asia-Pacific region released on Wednesday.

“Although China’s recovery can boost regional trade, weak global growth, closed borders, and festering tensions around trade, technology, and security have worsened the prospects for a trade-led recovery in the region.”

The IMF said it expects Asia’s economy to contract 2.2% this year. That decline is 0.6 of a percentage point larger than its forecast in June, due to sharp slumps in countries like India, the Philippines and Malaysia.

India’s economy is likely to shrink 10.3% this year in stark contrast to China, which is set to expand 1.9%, the IMF said. Asia’s economy is likely to grow 6.9% in 2021 thanks to the boost from expected stronger recoveries in China, the United States and the euro area, it said.

Reuters