Thursday, May 14, 2009

Investment Plummets says EU Release

A new release out of the European Union's Eurostat program today, provides a glimpse at how the global recession has impacted financial flows. A release today tells that foreign direct investment in the 27 EU member countries fell 60 percent last year. Investment from the US to the EU fell particularly hard to 45 bn euro in 2008 from 194 bn euro in 2007, down 76.8 percent. At the same time those 27 countries invested 30 percent in the rest of the world.

Of course this data represents corresponds to the freezing of credit markets last fall. Yet it may also indicate changes in long-term investment expectations. Foreign direct investment (FDI) is seperate from pure financial flows that includes a wider array of short-term investments in stocks, currency, etc. FDI focuses on "obtaining a lasting interest by the investor in one economy in an enterprise resident in another economy." The Eurostat release lists purchases that buy more than 10 percent of a firm's stock in this way. Think of Inbev's purchase of Anheuser-Busch.

These declines come just as President Obama seeks to change profit repatriation laws to reap more tax revenue. Criticism of the plan exists both at home and in EU countries like Ireland, which has been a beneficiary of American subsidiary profits to tax. If investment falls, the impact of such taxes changes may be less than everyone expects.

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