Foreign investment by firms worldwide increased in the first six months of 2021 as rich economies recovered strongly from the ravages of the pandemic, but new bets on manufacturing decreased despite broad indications that capacity isn't up to matching rebounding demand.
According to the United Nations, corporations made new foreign investments worth $852 billion in the first half of this year, up $373 billion from the same period last year. Three-quarters of that amount went to rich countries as businesses responded to the possibility of a quick recovery fueled by the rapid deployment of potent COVID-19 vaccines.
According to the United Nations Conference on Trade and Development, the recovery was stronger than projected, albeit uneven. While foreign investment in rich countries more than doubled in the first half of 2020, with investment in the United States increasing by 88%, firms slashed new pledges in the world's poorest countries by 9%.
This disparity mirrors the outlook for economic development this year, with poor countries expected to experience a slower rebound due to limited access to vaccines. Foreign investment increased by 25% in East and Southeast Asia, which is dominated by China and has greater access to vaccinations than the poorest countries.
“The dreadful pandemic has apparently ceased to be a major drag on the economic performance of the advanced world,” said Holger Schmieding, chief economist at Germany’s Berenberg Bank. “Short of a nasty new shock such as the emergency of a vaccine-resistant variant of the virus, we expect Europe and the US to get through the autumn and winter without major new lockdowns.”
Developing countries have claimed a growing share of global foreign direct investment in the years preceding the pandemic. However, 2021 could be a blip because rich countries had a greater reduction in new investments in 2020.