FDI Drops 18% in 2017 as Corporate Restructurings Decline – OECD
Global Foreign Direct Investments (FDI) flows decreased by 18% to USD 1 411 billion in 2017 compared to 2016. This represents 1.8% of global GDP, compared to 2.3% in 2016 and 2.5% in in 2015. The drop in FDI reflects a drop in financial and corporate restructuring, possibly as a result of U.S. tax reform, which decreased incentive to engage in those types of transactions in 2017.
The US tax reform will have both immediate and long-term impacts on direct investment, probably by boosting FDI flows in 2017 by increasing the amount of earnings US MNEs reinvested in their foreign affiliates as repatriations fell in the fourth quarter in anticipation of more favorable tax treatment in 2018.
FDI flows reached their lowest level since 2013 (USD 280 billion) in the fourth quarter of 2017, while inflows to the OECD decreased by 37%, largely driven by decreases in the United Kingdom and the United States from high levels in 2016. Outflows from the OECD decreased by a more modest 4%.
In contrast, FDI inflows to non-OECD G20 economies increased by 3% while FDI outflows decreased by 33% as FDI outflows from China declined for the first time since 2005. China, after being a net outward direct investor for the first time in 2016, became a net inward investor in 2017.
The United States remained the largest source of FDI worldwide by a long stretch, followed by Japan, China, the United Kingdom, Germany, and Canada. Although the majority of OECD countries account for a smaller share of global GDP than they did at the start of the global financial crisis, most still account for a larger share of global inward and outward FDI, indicating that they remain among the more financially integrated economies in the world.
Foreign direct investments are both a key driver and a key indicator of the degree of globalization of the world’s economy, and should be followed closely by anyone interested in the global employee benefits / global mobility market.