ISLAMABAD: Global FDI flows are expected to drop to between $1.5 trillion and $1.6tr in 2016, a fall of around 10 per cent to 15 per cent from 2015, before recovering in 2017 and 2018, according to estimates from United Nations Conference on Trade and Development’s (UNCTAD) latest Global Investment Trends Monitor, published on Thursday.

This decline reflects the fragility of the global economy, persistent weakness of aggregate demand, effective policy measures to curb tax inversion deals and a slump in Multinational Enterprises’ (MNE) profits. Elevated geopolitical risks, regional tensions and weather-related shocks could further amplify the expected downturn.

FDI flows are likely to decline in both developed and developing economies. Over the medium term, global FDI flows are projected to resume growth in 2017 and to surpass $1.8 trillion in 2018, UNCTAD report says.

A tumultuous start to 2016 in global commodity and financial markets, added to the continuing drop in oil prices, have increased economic risks in many parts of the world. The momentum of growth slowed significantly in some large developed economies towards the end of 2015.

In developing economies, sluggish aggregate demand, low commodity prices, mounting fiscal and current account imbalances and policy tightening have further dampened the growth prospects of many commodity exporting economies.

The global economic outlook and lower commodity prices have had a direct effect on the profits and profitability of MNEs, especially in extractive industries. After two years of increase, profits of the largest 5,000 MNEs slumped in 2015 to the lowest level since the global economic and financial crisis of 2008-2009.

Hindered by the current global and regional economic slowdown, FDI inflows to Asia are expected to decline in 2016 by about 15 per cent, reverting to their 2014 level.

Published in Dawn, October 7th, 2016