Global Investment in 2025 Shifts Toward Strategic Sectors

FDI fell 3% in early 2025 as geopolitical tensions and high financing costs reshape global capital flows. Despite declines, digital infrastructure and semiconductors attract strong investment, while emerging markets remain mixed and Africa faces a sharp downturn.

Global investment flows are navigating a period of pronounced uncertainty in 2025, as per the latest UNCTAD report reveals a continued 3% decline in foreign direct investment during the first half of the year, marking the second consecutive annual downturn. The pullback reflects a convergence of global pressures: escalating geopolitical tensions, rising tariff barriers, and persistently high financing costs. These factors have collectively pushed investors into a defensive posture, delaying new commitments and reshaping cross-border capital allocation.

Within this challenging landscape, the most notable trend is the selective concentration of investment rather than a broad-based recovery. While advanced economies saw an overall 7% decline in FDI, Germany and France bucked the trend, buoyed by a handful of megadeals in high-tech and digital infrastructure. Major projects, such as TSMC’s $100 billion semiconductor expansion and the $43 billion MGX digital investment in France, demonstrate that capital is increasingly funneled toward strategic industries aligned with national security, technological sovereignty, and supply-chain resilience. This selective surge underscores a global shift: investment momentum is no longer evenly distributed but clustered around sectors central to the digital and energy-transition race.

Mergers and acquisitions, meanwhile, weakened sharply—down 18%—highlighting how high borrowing costs and regulatory scrutiny are suppressing deal-making despite pockets of strength in transportation and chemicals. Emerging markets have shown relative stability, with Asia and Latin America benefiting from supply-chain diversification and government incentives, while Africa faces a steep 42% decline, signaling widening disparities in global capital access.

For global markets, these dynamics suggest a divided investment environment: traditional sectors face structural headwinds, while digital industries like semiconductors, data centers, and advanced services continue to attract record inflows. As geopolitical fragmentation accelerates, investors are likely to favour technologically strategic, geographically secure destinations. Digital investment is poised to remain a principal driver of cross-border flows, offering both resilience and long-term growth potential amid an uncertain macroeconomic backdrop.