The year 2018 was one of turbulence for the global economy, with volatility in oil prices, and US-China trade conflict hitting global growth. A new report by the Organization for Economic Co-operation and Development (OECD) shows that global foreign direct investment (FDI) flows, one of the critical indicators of economic activity, decreased by 27% to $1.1 trillion in 2018 from the previous year.

The report attributes the sharp decline in FDI flows to the short-term consequences of tax reform in the US, which compelled US companies to bring home large sums of money that were held with foreign affiliates.

At just 1.3% of global GDP (gross domestic product), the FDI flows in 2018 were at the lowest levels since 1999.

This marked the second successive year of decline in FDI flows, having fallen 16% in 2017. The US, usually the largest outward investor, registered negative outflows in the first half of 2018, but regained its position as the major source of FDI outflows worldwide in the second half of the year.

The largest impact of the outflows was felt by the OECD economies, which registered an FDI outflow of 41% in 2018. China also recorded a decrease in FDI outflow for the second consecutive year.

While the tax policy change may have led to a one-time shock in the FDI outflows, the report highlights that this will have minimal impact on the foreign operations of US companies, as it required the sale of financial assets as opposed to real assets. However, the longer term impacts of this policy are harder to predict. With uncertainty in the global economy remaining high due to trade tensions, global FDI may continue its downward trend in the coming years.

Also Read: FDI in figures

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