The global economy is at a crossroads, balancing robust growth with unpredictable political movements.
After returning in 2015 to pre-global financial crisis levels, initial estimates from the United Nations Conference on Trade and Development show a $1.5 trillion — or 13 percent — drop in foreign direct investment in 2016. But a report published this week by global consulting firm A.T. Kearney found that despite political uncertainty, investors are more optimistic than pessimistic about the global economic outlook.
“The thing investors abhor more than anything else is uncertainty, and the world is moving into a state of chronic, heightened uncertainty,” said Paul A. Laudicina, partner at A.T. Kearney and chairman of the firm’s Global Business Policy Council, but “big internal markets with robust growth opportunities always attract investment.”
This month’s World Economic Outlook from the International Monetary Fund warns that “pressures for inward-looking policies … threaten global economic integration and the cooperative global economic order that has served the world economy.” Protectionist policies, geopolitical tensions and domestic political discord are among the main risks to otherwise promising world growth projections.
But a survey of global investors suggests that investment stability may not be as threatened as it may seem.
Despite the initial shock of Brexit, the U.K.’s decision to leave the European Union, the U.K. ranks No. 4 in the 2017 A.T. Kearney FDI Confidence Index, one spot better than last year. Germany and France, two countries facing key elections with controversial candidates this year, also improved, both ranking in the top 10. And after a presidential election that greatly lowered respect for America’s leadership, the U.S. maintains its No. 1 spot for the fifth year in a row.
Investors are looking for access to markets and growth potential, and foreign direct investment decisions require a long-term perspective in assessing a country’s fundamentals, Ludicina says. The current geopolitical environment may have helped create what he calls an “islandized” world view, as as opposed to a globalized one, where investors target opportunities in specific countries instead of larger regions or blocs.
With potential tightening of regulation and borders, it’s “important to plant flags in a lot of different territories you can’t access as easily from afar,” Ludicina says. If investors are concerned about cohesiveness of the european union, he says, they may be looking to get a toehold in key markets that will always be a part of the global supply chain.
Thanks to a growing global economy, investors also have more money and are looking for places to put it. Of the global investors surveyed for the 2017 A.T. Kearney FDI Confidence Index, 75 percent said that they were likely to increase the amount of foreign direct investment this year. Three new countries — the United Arab Emirates, New Zealand and South Africa — crack a regionally diverse group of countries in the top 25 spots in the index.
| Country | FDI Confidence Index Rank | FDI Inflows in 2015 | Best Countries Rank |
| U.S. | 1 | $379 billion | 7 |
| Germany | 2 | $46 billion | 4 |
| China | 3 | $250 billion | 20 |
| U.K. | 4 | $58 billion | 3 |
| Canada | 5 | $55 billion | 2 |
| Japan | 6 | ($42 million) | 5 |
| France | 7 | $35 billion | 9 |
| India | 8 | $44 billion | 25 |
| Australia | 9 | $39 billion | 8 |
| Singapore | 10 | $65 billion | 15 |
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