Turmoil in world financial markets and slowing economic growth will cut foreign direct investment flows this year from last year's record-breaking pace, but a UN agency forecast yesterday that the decline will be muted by sustained flows into developing countries.

The latest annual world investment report from the UN Conference on Trade and Development (Unctad) said total inflows of foreign direct investment (FDI) surged 30 per cent last year to $1,833bn (€1,250bn, ￡990bn), surpassing the previous peak in 2000 by some $400bn and topping the agency's preliminary estimate for 2007 of $1,500bn.

Unctad said yesterday that it expected a 10 per cent reduction in FDI flows in 2008 to about $1,600bn – a figure which would still be the second highest on record – under the impact of slowing merger and acquisition activity in industrialised countries and the latest Wall Street crisis. It said transactions were down nearly 30 per cent in value between the second half of 2007 and the first half of 2008.