Reversing the process of global integration of economies, A new ‘cold war’ with opposing economic blocsas warned by the International Monetary Fund (IMF), which estimates a negative impact of up to seven percentage points on world GDP in the event of severe geoeconomic fragmentation.
In an article published by the institution’s director general, Kristalina Georgieva, the Bulgarian economist argues that the long-term cost of trade fragmentation “it fluctuates between 0.2% of world production in a limited fragmentation scenario and almost 7% in a severe scenario”This is roughly equivalent to the combined annual GDP of Germany and Japan.
“If you add technological decomposition to the mix, some countries may experience losses of up to 12% of GDP“pointing out.
In fact, Georgieva warns the overall effect is likely to be even greater, Depending on how many channels of fragmentation are taken into account, fragmentation can be felt through restrictions on cross-border migration, declining capital flows and a sharp decline in international cooperation, in addition to trade restrictions and barriers to technology diffusion.
It highlights this point. this will be “particularly difficult” for those most affected by fragmentation.Low-income consumers in advanced economies will be hit hard with a significant impact on much of Asia as they will lose access to cheaper imported goods and small open market economies are heavily dependent on open trade.
Faced with this situation, the IMF director points out that the international trading system needs to be strengthened, starting with a “strong reform of the World Trade Organization” and signing agreements for open markets based on the WTO.
“We must also be pragmatic about strengthening supply chains. (…) Still, policy options such as relocation may leave countries more vulnerable to crises,” adds Georgieva.
Secondly, Bulgarian recommends helping vulnerable countries deal with debt, as fragmentation could make it more difficult to help many vulnerable emerging and developing economies that have been hit hard by multiple shocks.
“Fragmentation will make it more difficult to resolve country debt crises, especially if the main official creditors are divided along geopolitical lines,” he warns.
Likewise, Georgieva accelerating climate actionHe points out that a distinguishing factor may be setting a minimum international carbon price among the main emitters and increased climate finance to help vulnerable countries adapt.