Private sector international investment set to rise by 20% in 2010 putting an end to the two year global economic crisis, report suggests

Written by Ray Clancy

Friday, 02 July 2010 09:30

The global economic crisis is nearing its end as the international free fall that has seen sharp declines in investment levels reaches bottom, it is claimed.

According to new data and analysis from the Organisation for Economic Co-operation and Development on international mergers and acquisitions, international M&A investment in 2010 is on track to match 2009 levels, having reached $300 billion in the first half of 2010.

This would bring to an end the sharp declines in international investment activity in 2008 when it fell 21% and 2009 when it was down 53% and could signal that the bottom of the cycle has been reached, the report says.

It also says that private sector international M& S investment is also set to increase by almost 20% in 2010, the first increase since the start of the crisis in 2008.

If this proves to be the case, international M&A investment will have declined by 64% during the global economic crisis from the peak of $1.7 trillion reached in 2007. While this decline is significant, the bursting of the dot.com bubble resulted in a 72% decline in international M&A between 2001 and 2003, suggesting that international investment has been more resilient during the current economic crisis, the report points out.

Governments played major role in 2009 international M&A activity, according to the report. By 2009, $120 billion in international M&A investment was accounted for by governments acquiring foreign assets, or 20% of total international M&A investment in 2009.

This significantly increased government involvement in international M&A activity took place through two channels: financial rescue packages that resulted in de facto ownership of foreign assets and a significant increase in international investments by sovereign wealth funds.

To put this in perspective, in the eight years preceding the crisis governments accounted for only 3% of annual international M&A activity. In the absence of government-driven international M&A investment in 2008 and 2009, the overall decline in global M&A activity would have been around 76% from the 2007 peak, rather than the currently expected decline of 64%.

But government involvement in international investment patterns looks set to fall back significantly in 2010. ‘On current trend, government international M&A investment will be down to around $20 billion in 2010. The fact that overall international M&A investment activity is projected to stay steady at around $600 billion in 2010 despite the sharp drop in international M&A investment by governments shows that private international M&A investment has been growing to pick up the slack,’ the report says

‘Once government-driven M&A is excluded from the overall international M&A investment trend, we find that private international M&A investment is projected to increase by almost 20% in 2010, the first increase since the start of the crisis in 2008,’ it adds.