Business leaders show signs of confidence in the investment outlook and the prospects for globalization—though concerns about persistent risks remain. Executive summary
The 2023 FDICI survey was in the field in January, when the economic outlook for the year was by no means optimistic. However, after months of economic projections suggesting a (potentially major) recession might be looming, the outlook was showing signs of improving in the new year. Inflation was ticking downward, labor markets in key markets appeared to be rebalancing, and the International Monetary Fund released the January update of its World Economic Outlook, suggesting that it no longer expected a global recession for the year ahead. Coupled with estimates from Oxford Economics that global FDI inflows rose slightly from an estimated $2.07 trillion in 2021 to $2.13 trillion in 2022, global investors likely felt somewhat more positive about the economic outlook than in previous months.
Survey results reflect continued optimism among investors ... More than three-quarters (82 percent) said they were planning to increase their FDI in the next three years—up marginally from a corresponding level last year of 76 percent. Further, 87 percent cited FDI as more important for their corporate profitability and competitiveness in the next three years, up slightly from 83 percent in 2022. And investor perspectives on the outlook for the global economy were generally aligned with last year’s results. While levels of pessimism ticked up slightly from 32 to 35 percent, nearly two-thirds of investors (63 percent) remained more optimistic than pessimistic about the global economy—precisely the same level as last year.
… yet this positive sentiment is tempered by concern about downsides. Investors see commodity price increases, heightened geopolitical tensions, and political instability in an emerging market as the most likely risks this year. These anticipated developments are likely attributable to the continued Russia–Ukraine conflict and the continuing effects of the pandemic, including commodity price volatility and high inflation. Indeed, global inflation reached a striking 7.8 percent in 2022 and, while currently declining, is still anticipated to remain above 5 percent in 2023. And energy prices increased to unprecedented levels, especially in Europe.
The United States takes the top ranking for the 11th consecutive year. Canada reclaims the second position after falling to third in 2022, and Japan jumps to third place from a rank of fourth last year. Germany drops two spots to fourth, likely reflecting the economic and energy challenges it has faced due to the geopolitical crisis in Eastern Europe. The United Kingdom maintains the fifth position, with France following closely behind. China jumps from 10th position to 7th, perhaps attributable to signs of recovering economic activity following the decision to drop the zero-COVID policy in late 2022. Overall, this year’s survey once again demonstrated investor preference for developed markets, which accounted for 19 of the 25 countries on the Index.
For the first time in the 25-year history of the FDI Confidence Index®, we are introducing this year an exclusive ranking for emerging markets. This list is intended to give business leaders insight into which emerging markets are most appealing to investors. China, India, the United Arab Emirates, Qatar, Thailand, and Saudi Arabia hold the top six positions; they are also the only emerging markets included in the world rankings. Beyond these top six, Latin America makes a strong showing, with Brazil, Mexico, and Argentina taking the 7th, 8th, and 9th positions, respectively. Southeast Asia also performs strongly, with Malaysia, Indonesia, the Philippines, and Vietnam taking the 10th through 13th positions, respectively.
This year’s thematic section results suggest that business leaders believe globalization is and will remain the central force in foreign direct investment … A distinct majority of respondents (66 percent) anticipate an increase in globalization in the next three years; by contrast, only 23 percent expect a decrease. Those anticipating an expansion of globalization cite a combination of connected digital infrastructure alongside growing trade opportunities and limited trade barriers as the primary driving forces. This is likely the result of the striking proliferation in digital trade and services, especially for telecom and IT, that took place during the pandemic and the rebound in trade writ large beginning in 2021.
… but investors acknowledge that globalization is changing. While investors believe in the benefits of globalization and expect it to strengthen, they also anticipate more regionalization over the next three years and that national governments will pursue strategies to increase self-sufficiency. Nevertheless, respondents expect FDI to increase. Roughly half indicated they intend to expand their global investment postures. These figures clearly reflect an awareness that while globalization will continue, its nature may shift as regionalization and self-sufficiency efforts proliferate.