M&A market 'back to global financial crisis levels,' UN trade arm warns in downbeat economic outlook

UNCTAD's World Investment Report 2025 warns of negative international investment in 2025 due to trade policy uncertainty, with downward revisions across key economic indicators. The report highlights a reversal in manufacturing investment growth and record lows in M&A activity and greenfield project announcements, potentially putting $100-$200 billion in project value at risk. While overall FDI to developing countries remained stable in 2024, driven by increases in Africa and developing Asia, investment in China, South America, and sectors aligned with sustainable development goals declined significantly.

Analysis

The United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2025 signals a negative trajectory for international investment in 2025, primarily driven by global trade policy changes and tariff uncertainty. This has led to downward revisions across most foreign direct investment (FDI) indicators, including GDP, capital formation, and exports, reversing modest growth seen earlier in the year. Notably, a two-year positive trend in manufacturing investments, spurred by supply chain diversification efforts beyond China, has stalled, with companies now hesitant due to tariff concerns. First-quarter 2025 data reveals record lows for both M&A activity, which has regressed to global financial crisis levels, and greenfield project announcements, placing an estimated $100 to $200 billion in project value at risk globally. While overall FDI into developing countries remained stable at $867 billion in 2024, significant regional disparities exist: Africa recorded its highest ever FDI at $97 billion (a 75% increase, or 12% excluding a large Egyptian deal), and developing Asia (ASEAN) saw a 10% rise to $225 billion. Conversely, FDI into China slumped by 29% in the past year (40% down from its peak), South America experienced an 18% decrease, and India a modest 2% decline. International project finance, crucial for least developed countries (LDCs) and infrastructure, fell 26% in 2024, compounding a previous decline. Alarmingly, investment in sectors aligned with sustainable development goals also deteriorated, with energy and gas supply investment down 28% and renewable energy project finance declining 16%. However, digital economy investments, including data centers and semiconductors, are the fastest-growing FDI segment globally, though often asset-light. The report underscores a structural shift towards domestic and nearshore investment strategies amid rising policy risks.

Key Decisions for Investors

• Investors should exercise heightened caution regarding assets sensitive to global trade volumes and cross-border M&A activity, given the pronounced increase in policy uncertainty and downward revisions to investment forecasts.
• A selective approach to emerging markets is warranted, favoring regions like Africa and ASEAN that demonstrate FDI resilience, while carefully assessing exposure to markets like China and South America experiencing significant FDI downturns.
• Closely monitor evolving trade policies and tariff environments, as these are key drivers of the current investment slowdown and will significantly influence future capital allocation and supply chain configurations.
• Consider strategic allocations to rapidly expanding sectors such as digital infrastructure and semiconductors, while remaining mindful of the current pullback in sustainable development investments which could present long-term thematic opportunities or risks.