Global investment decline may worsen due to tariffs, UN trade agency warns

GENEVA: Global foreign direct investment fell for the second consecutive year in 2024, with fears this year could be even worse as trade tensions rock investor confidence, the United Nations agency for trade and development said in a report published on Thursday.

AI Brief

Global productive FDI dropped 11% in 2024 due to trade tensions and investor uncertainty, despite headline figures showing a 4% rise.
Most investment routed through European conduit economies had limited real economic impact, masking deeper investment decline.
UNCTAD warns of a worse 2025 outlook, with early data showing record low deal activity and falling job-creating investments.

Foreign Direct Investment transactions, which do not include several European conduit economies, declined by 11%, indicating a significant reduction in actual productive investment activity, according to UNCTAD.

Geopolitical tensions and trade fragmentation contributed to lower investment last year as they created uncertainty, which UNCTAD Secretary-General Rebeca Grynspan described as a "poison" for investor confidence.

"We are even more worried about the picture in 2025...We already feel that investment is halted...Tariffs are affecting growth," Grynspan told Reuters, with short-term risk management being prioritised over long-term investment.

UNCTAD said its outlook for international investment in 2025 was negative due to trade tensions. Early data for the first quarter of 2025 shows record low deal and project activity.

When several European conduit economies - which act as intermediary hubs where investments temporarily pass through before reaching their final destinations - are included, the data showed that FDI increased by 4% to $1.5 trillion.

However, UNCTAD noted that this figure masks the reality that much of this investment is merely passing through these jurisdictions and was not productive.

"We see a very worrying tendency...Investment that has a real impact on jobs and infrastructure is going down," she said.

Developed economies suffered a sharp drop in investment, with a 58% decrease in Europe. North America, however, observed a 23% increase in FDI, led by the U.S., while countries in Southeast Asia reached the second-highest level of FDI on record with a 10% rise, representing $225 billion.

Though capital inflows in developing countries were broadly stable, UNCTAD observed that capital was not being injected into crucial job-creating sectors such as infrastructure, energy and technology.