According to the World Bank, foreign direct investment in developing nations will drop by USD 180 billion or 31% in 2009 as a global recession prompts multinationals to cut spending on factories and mines.

Mr Mansoor Dailami manager of international finance in the global development prospects group said that the decline will put renewed pressure on emerging market currencies, even as asset sales by fund managers slow. He added that "This is the most serious reaction so far to the global recession, the factory level. Most emerging-market currencies are already under pressure and this tendency will continue. In 2008, it was a stocks and portfolio story. This year, it will be an FDI story."

According to Morgan Stanley estimates, foreign direct investment fell an estimated 10% in the developing world in 2008 and will cool further this year. FDI, which typically involves spending on plant and machinery or the purchase of a controlling interest, accounted for 38% of inflows into emerging markets in recent years as compared with 10% for investment by funds and 54% for loans.

Bloomberg JPMorgan indexes tracking currencies in Asia, Latin America and Eastern Europe in 2008 posted declines of 5.9%, 19% and 11%, respectively and have since dropped further. The won is down 8.3% versus the dollar so far this year following a 17% jump in December. The real is 2.6% weaker and the zloty has lost 12%.

Mr Michijiro Kikawa CEO of Hitachi said that "I've never before experienced seeing sudden, simultaneous drops in worldwide demand. New investment won't be implemented until we can foresee how the market will recover."

As recently as October 28th 2008, Hitachi was predicting 26% growth in China sales for the current financial year. The nation’s excavator market shrank 50% from year earlier levels in November and 37% in December.

(Sourced from www.bloomberg.net)