Global foreign direct investment (FDI) flows reached $1.37tn in 2023, a 3% increase from 2022, defying expectations, a new report from the United Nations Conference on Trade and Development (UNCTAD) shows.

The report comes amid recession fears in Europe and elsewhere in the world. It shows that FDI in the EU grew from a negative $150bn to a positive $141bn, mostly due to large swings in Luxembourg and the Netherlands. However, inflows in the rest of the EU decreased by 23%.

Negative FDI is when more direct investment money moves out rather than inside the country or region in question.

In the US – the largest FDI recipient – inflows were 3% lower than in the previous year, while greenfield FDI projects went down by 2% and project finance deals by 5%.

China similarly reported a decline in FDI inflows (-6%), but the number of greenfield project announcements increased by 8%.

A significant drop in inflows came, however, from India, where last year they were 47% lower than in 2022. Despite that, the country remained in the top five for global greenfield destinations.

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By GlobalData

“Looking ahead, a modest increase in FDI flows in 2024 appears possible, as projections for inflation and borrowing costs in major markets indicate a stabilisation of financing conditions for international investment deals,” the report reads. “However, significant risks persist, including geopolitical risks, high debt levels accumulated in many countries, and concerns about further global economic fracturing.”

Separate from UNCTAD, GlobalData experts warn companies will continue to navigate difficult macroeconomic conditions as wars in the Middle East and Ukraine rage. Still, the global economy is expected to get inflation under control, even as UK consumer prices rose at a rate of 4% in December.

That usually is a good sign for FDI, given that lower inflation rates mean greater returns for investors. Nevertheless, Glenn Barklie, head of FDI services at GlobalData, warns: “There is still some way to go before countries bring their inflation rates in line with their target rates.”