Global FDI falls 41% in first half of 2018 after Trump tax reforms

GENEVA (Reuters) – Global foreign direct investment (FDI) fell by 41 percent to $470 billion in the first six months of this year, the lowest since 2005, preliminary figures from the United Nations trade and development agency UNCTAD showed on Monday.

President Donald Trump's U.S. tax reforms were the main cause of the slump, which followed a 23 percent fall in 2017, as American firms repatriated a net $217 billion from foreign affiliates, UNCTAD investment chief James Zhan said.

"The investment flows are more policy-driven and less economic cycle-driven," Zhan told a news conference, citing the U.S. tax reform and economic liberalization in China. "Overall the picture is gloomy and the prospect is not so optimistic."

FDI, comprising cross-border corporate takeovers, intra-company loans and investments in start-up projects abroad, is a bellwether of globalization and a potential sign of growth of corporate supply chains and future trade ties.

But it can also go into reverse as companies pull out of foreign projects or repatriate earnings. Such reversals could erode the importance of international supply chains, which became an increasingly important driver of international trade until 2011 and subsequently stagnated, Zhan said.

"If there’s a lack of FDI for expansion of the value chains then of course it will impact on global value chains and therefore impact on global trade," he said. "It’s difficult to tell whether we are at a turning point (in globalization) or if this is only a slowdown."

As U.S. firms pulled money out of their investments in the first half of the year, China became the top destination for FDI, with $70 billion of inflows, a 6 percent rise.

Developing countries attracted twice as much FDI as developed countries overall. Flows into Europe fell by 93 percent, as traditional inflows to Ireland - the European base of a number of U.S. multinationals - flipped to a negative $81 billion and Switzerland saw $77 billion pulled out.

But Britain jumped to second in the global rankings, with $66 billion of inflows, as international companies shifted money into Britain with intra-company loans, reversing a relative drought in 2017.

The United States was the third biggest destination, with $46.5 billion of inflows.

Despite the overall slowdown, money going into newly announced start-up projects, so-called greenfield investments, rose 42 percent, providing a glimmer of hope that more money will follow and drive more spending and trade in future.