The rapid spread of the deadly new coronavirus is expected to take a serious toll on foreign direct investments worldwide, with UN economists forecasting a drop of up to 15 percent.
A fresh report from the UN Conference on Trade, Investment and Development (UNCTAD) warned that regardless of how quickly the COVID-19 outbreak lasted it would significantly drag down global FDI, which is a measure of cross-border private sector investment.
Efforts to halt the spread of the virus, which has killed more than 3,500 people and infected more than 100,000 people around the world, have wreaked havoc on international business.
The UN agency pointed to estimates that growth in the global economy will slow between 0.5 and 1.5 percent this year, depending on whether the outbreak is reined in during the first half of this year or if it rages through the end of 2020.
The corresponding “downward pressure on FDI will be 5-15 percent,” the report said.
That is compared to UNCTAD’s January projection that global FDI inflows this year and next would be stable, with a potential increase of up to five percent, it said.
The report pointed out that more than two thirds of the world’s top 100 multinational enterprises have issued statements on the impact the outbreak is having on their business, with many warning they are slowing down capital expenditures in affected areas.
A full 41 of those companies have also issued profit alerts, which UNCTAD said would translate into lower reinvested earnings, which are a major component of FDI.
On average, the top 5,000 multinational companies have seen a downward revision of their 2020 earnings estimates of nine percent due to the outbreak, UNCTAD said, adding that the automotive industry and the airlines have been hardest hit.
The report stressed that the impact would be “uneven”, with the greatest effects of course felt in the countries worst affected by the outbreak.
But it cautioned that “negative demand shocks and the economic impact on supply chain disruptions will affect investment prospects in other countries.”
UNCTAD stressed that China, which has been hardest hit by the outbreak so far, is feeling the most serious “demand shock”, pointing for instance to Toyota, which reported a 70-precent drop in sales in the country in February.
But the report stressed that China’s role as a central manufacturing hub for many global businesses meant there was a clear ripple-on effect through global value chains.
“The economic impact of supply chain disruptions will affect investment prospects in other countries,” it said.