The latest report from the U.N. agency that monitors worldwide trade and investment predicts a global decline in foreign direct investment of 30%-40% during 2020-2021.
While earlier concerns had focused on disruptions of supply chains linked to China, current fears are much more strongly connected to the downturn in global demand due to quarantines, lockdowns, business closures, and employment furloughs.
According to the U.N. Conference on Trade and Development, the hardest hit industries so far are energy (earnings projected to drop in 2020 by 208%), airlines (-116%), and the automotive industry (-47%). But others are catching up fast, with hotels, basic materials, and all industrials facing double digit declines.
The huge drop in energy sector earnings is particularly troubling, since that sector accounted for 1 in 5 investment dollars last year.
The agency’s latest assessment is far more severe than earlier projections:
Now the rapid worldwide spread of the pandemic and the implementation of mitigation and lockdown measures across much of the world have made a far larger demand shock and supply disruption inevitable and the consensus is that most if not all major economies will experience a deep recession.
There is one ray of hope: “If the policy response proves effective recovery could be relatively quick when delayed investments are brought back on track.”
One such response highlighted by the U.N. Conference on Trade and Development is accelerated depreciation of post-pandemic capital expenditures.
It’s a gloomy picture overall, but highlights the importance of getting Americans (and people all over the world) back to work as soon as possible.