UN trade body predicts big coronavirus hit to foreign direct investment

• Most of the profit warnings are from consumer-facing companies, indicating that slowing demand, for now, is expected to have more direct effects on earnings than production or supply chain disruptions.
• The automotive industry (-44%), airlines (-42%) and energy and basic materials (-13%) have been hit hardest, UNCTAD said.

ZURICH: The coronavirus outbreak will cause global foreign direct investment (FDI) to shrink by 5%-15% from previous forecasts, resulting in only marginal growth in 2020-21, with automotive, airlines and energy industries hit hardest, a United Nations report released on Sunday indicated.

The UN Conference on Trade and Development (UNCTAD) said that the negative impact of the virus would likely get worse.

Of 100 multinational companies which UNCTAD tracks as a global economic barometer, many are slowing capital expenditure in affected areas and 41 have so far issued profit warnings, which will hit reinvested earnings, a major driver of FDI, UNCTAD said.

Most of the profit warnings are from consumer-facing companies, indicating that slowing demand, for now, is expected to have more direct effects on earnings than production or supply chain disruptions.

A wider sample of the top 5,000 listed companies showed earnings forecasts for fiscal year 2020 have been revised down in the last month by an average 9% due to the new virus, which has infected more than 100,000 people and killed thousands.

The automotive industry (-44%), airlines (-42%) and energy and basic materials (-13%) have been hit hardest, UNCTAD said.

"The revisions to date are most likely to be conservative," UNCTAD said. "The negative impact of the virus is likely to spread and increase further."

In January, UNCTAD estimated that global FDI flows in 2019 were $1.39 trillion and expected them to rise by around 5% in 2020. Now it thinks they may hit the lowest level since the financial crisis in 2008 should the epidemic spread and continue throughout the year.

James Zhan, UNCTAD's director of investment and enterprise, said East Asia will bear the brunt of lower FDI inflows.

"China has been the second-largest FDI recipient country, therefore a significant decline of FDI flows to the country in the short term will affect the level of global FDI flows," he said.