The United Nations Conference on Trade and Development (UNCTAD) expects a general decline in foreign direct investment (FDI). In addition, European production of precision instruments, machinery, automotive, and communication equipment is expected to be seriously affected by the slowdown in the Chinese economy.
In an analysis published on 8 March, the UN organisation announced an overall decline in FDI flows. While countries on the epidemic’s front lines will be most affected by falling investment, negative demand shocks and the impact of disruptions in global supply chains will have a widespread impact, UNCTAD warns.
Many companies are already cutting back on capital expenditures in the affected areas, notes the Geneva-based organisation. Their profits will therefore be affected, which will consequently affect the volume of their reinvestment, one of the main components of FDI.
According to the various scenarios envisaged by the authors, investments could slow by -5% to -15% compared to the initial forecasts for 2020.
When the “world’s factory” idles
Furthermore, the impact of production stoppages and disruptions in the global supply chain will be most acute for the most integrated economies.
An analysis published by UNCTAD a few days earlier underlines the effects of the world economy’s dependence on China, the cradle of the coronavirus epidemic.
This dependence is linked to its role as a global supplier not only of finished consumer goods, but also of intermediate inputs for foreign firms, particularly in the precision instruments, machinery, automotive, equipment and communications sectors. These supply chains will probably be affected most significantly, the document says.
About 20% of world trade in intermediate manufacturing inputs comes from China, up from 4% less than 20 years ago, UNCTAD recalls.
To consult the document on FDI: https://bit.ly/2IzmHYs; and for the supply chain report: https://bit.ly/2TTHBHd (Original version in French by Hermine Donceel)