After decades of increasing economic integration, a significant deterioration in international relations could lower global economic output by up to 7 per cent, according to a Bloomberg report, based on a new staff analysis from the International Monetary Fund.
That report came ahead of the World Economic Forum’s (WEF) Annual Summit, which kicked off in Davos’s Swiss ski resort town on Monday. The WEF summit is the biggest congregation of global leaders in a post-pandemic world.
The meeting calls on leaders from across the globe to address the immediate economic, energy and food crises while laying the groundwork for a more sustainable and resilient world.
But the IMF says the losses in individual countries might reach 8–12 per cent if technology is also disconnected from an ever-increasing fragmented global economy.
According to the IMF, even minor fragmentation might reduce the global GDP by 0.2 per cent.
But the IMF said further research is required to understand the anticipated costs to the monetary system worldwide and the Global Financial Safety Net (GFSN).
Watch |World Business Watch: IMF warns of deteriorating trade relations globally
The IMF note, published late on Sunday, said that following the global financial crisis of 2008–2009 and an increase in trade barriers observed in the years after, global flows of goods and capital had bottomed out.
“The COVID-19 pandemic and Russia’s invasion of Ukraine have further tested international relations and increased scepticism about the benefits of globalization,” the IMF staff report noted.
In addition to helping low-income consumers in rich economies through lower costs, the report claimed that expanding trade linkages had significantly reduced global poverty for years.
The unravelling of trade links “would most adversely impact low-income countries and less well-off consumers in advanced economies,” according to IMF staff analysis.
Cross-border movement restrictions would reduce remittances in migrant-sending nations while depriving host economies of important talents.
Foreign Direct Investment (FDI) would decrease with reduced capital flows, and the provision of essential global public goods would be in danger with decreased international cooperation.
Additionally, it might make it more difficult to resolve upcoming sovereign debt crises and impair the ability of the international community to assist nations in need, said IMF.
“With less international risk-sharing, (global economic fragmentation) could lead to higher macroeconomic volatility, more severe crises, and greater pressures on national buffers,” according to the staff report.
(With inputs from agencies)
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