Global foreign direct investment is navigating turbulent waters in 2025.

It fell by 3% in the first half of the year, extending a two-year slump.

This decline is driven by persistent trade tensions and high interest rates, creating uncertainty.

Forecasts predict a further drop of 4-8.5% in project activity for the full year.

Understanding these trends is crucial for businesses and investors aiming to thrive.

Global FDI Overview: A Persistent Slump

The investment landscape faces multiple headwinds from geopolitical risks.

Supply-chain de-risking and regional conflicts are significant contributors to the decline.

After an 11% decline to $1.5 trillion in 2024, the trend continues downward.

US tariffs and lagged macroeconomic weakness delay critical investment decisions globally.

This environment challenges traditional economic models and demands adaptive strategies.

Regional Dynamics: Diverging Paths

Investment flows are not uniform, highlighting divergent economic trajectories worldwide.

Developed economies saw sharp drops, with cross-border M&As falling 18%.

Developing economies remained flat overall but with stark regional differences.

• Latin America and the Caribbean experienced a 12% rise in inflows.
• Developing Asia saw a 7% increase, driven by technological advancements.
• Africa faced a severe 42% decline, reflecting deeper structural challenges.

The United States remains a top destination, with total FDI reaching $5.7 trillion.

In Q2 2025, US flows hit $102 billion, a 137% increase from Q1.

This surge is largely due to reinvested earnings accounting for 53% of total flows.

Greenfield projects in the US totaled $237 billion in H1 2025.

Over half came from AI sectors, signaling a shift in focus.

• Semiconductors contributed $103 billion, showcasing the sector's dominance.
• Data centers added $27 billion, indicating a move toward digital infrastructure.

Canada is seeing record inbound FDI, with shifting investor origins.

The US share of projects fell from 47% to 39%, while others rose.

Western Europe's appeal is declining for the third consecutive year.

Vietnam's FDI slowed in 2025 after a recovery, impacted by global cooling.

China's FDI flows are decoupling from other emerging markets, with its share rising.

This trend underscores the increasing economic fragmentation and de-risking efforts globally.

Sectoral Shifts: AI and Digital Economy Lead the Way

Despite overall declines, certain sectors are experiencing robust growth.

The AI and digital economy are driving a 7% rise in greenfield investment value.

This occurs despite a 17% drop in project numbers, indicating larger ventures.

• Data centers are a bright spot, with capital investment already exceeding 2024 levels.
• The average project size has grown from $191 million to $855 million.
• Major investors include tech giants like AWS and Google, investing over $1 billion each.

Military technology projects are projected to increase by 33% in 2025.

This is tied to record global military spending of $2.7 trillion in 2024.

Health sector projects in developing economies grew by 37%, driven by Asia.

Agrifood remained steady, providing some stability in volatile markets.

However, challenges persist in other areas, requiring careful navigation.

• Manufacturing greenfield projects fell by 29%, especially in supply-chain intensive sectors.
• Infrastructure international project finance saw an 11% decline in deals.
• Renewables experienced a 55% drop in project numbers globally.

Sustainable Development: A Concerning Downturn

Investments aligned with Sustainable Development Goals are declining sharply.

In developing countries, SDG-related projects fell by 10% in number and 7% in value.

This follows prior steep declines, raising alarms for global development efforts.

• Infrastructure projects are 25% below the decade average, with LDCs seeing an 85% drop.
• Renewables international finance decreased by 9% in number and 10% in value.
• Water and sanitation projects fell by 40%, with no new projects in Africa or LDCs.

LDCs are on track for the lowest number of projects since 2015.

This trend highlights the urgent need for redirected investment flows toward sustainability.

It calls for innovative financing models and stronger public-private partnerships.

Investment Flows and Project Types

The composition of FDI is shifting, with varied fates for different investment types.

Greenfield projects globally decreased by 17% in number but increased by 7% in value.

This boost is attributed to AI sectors, showing resilience in certain areas.

Mergers and acquisitions in developed economies fell by 18%.

This reflects cautious capital deployment amid ongoing uncertainties.

Project finance in developing economies saw a 21% increase in value despite fewer deals.

This is driven by large projects in regions like Panama and the UAE.

• Reinvested earnings in the US surpassed $200 billion in 2024.
• In Q2 2025, $54 billion came from reinvested earnings, emphasizing profit retention and local reinvestment.
• Outbound trends show US outbound FDI down 20% compared to 2019.

Megaprojects over $1 billion are rising, boosting the average project size.

In 2025, the average size reached $86.5 million, up from $53.6 million in 2019.

This shift focuses on data centers and potential renewables rebound post-2025.

It indicates a move toward larger, more capital-intensive ventures in key sectors.

Outlook for 2026 and Beyond

Looking ahead, persistent challenges will continue to shape FDI flows.

Geopolitical tensions and economic fragmentation remain significant barriers.

High costs and de-risking efforts add to the complexity of global investment.

However, potential positives offer hope for a modest rebound.

Easing finance conditions and a rise in Q3 M&A activity could help.

Sovereign wealth fund spending may lead to a year-end recovery in 2025.

For 2026, the United States is expected to lead both inbound and outbound FDI.

• Megaprojects will grow, with data centers increasing and semiconductors steady.
• Military FDI is projected to rise further, driven by global security concerns.
• Tariffs may have a more pronounced impact on US FDI in 2026.

The Kearney FDI Confidence Index ranks countries for the next three years.

This tool helps investors navigate the complex global investment environment.

By understanding these capital currents, stakeholders can make informed decisions.

Identifying opportunities in AI, data centers, and sustainable sectors is key.

Mitigating risks through strategic planning will be essential for success.

The flow of investment dollars tells a story of adaptation and resilience.

Embracing change and leveraging data can turn challenges into growth avenues.