Trade Fragmentation Could Cost Economy 7% of Global GDP Says IMF Chief

The logo of the International Monetary Fund is visible on their building, Monday, April 5, 2021, in Washington. The International Monetary Fund is downgrading its forecast for the world economy this year, Tuesday, Jan. 25, 2022WASHINGTON (Sputnik) – A rise in trade restrictions and geoeconomic fragmentation could cost the world economy 7% of GDP, Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva warns. “Estimates of the cost of fragmentation from recent studies vary widely. The longer-term cost of trade fragmentation alone could range from 0.2 percent of global output in a limited fragmentation scenario to almost 7 percent in a severe scenario — roughly equivalent to the combined annual output of Germany and Japan,” Georgieva said on the IMF blog on Monday. She warned that if “technological decoupling” occurs, some countries could see losses of up to 12% of GDP and the full impact would likely be even larger. According to the IMF managing director, small, open-market economies could be particularly hard-hit and most of Asia remains vulnerable due to its reliance on open trade. “In addition to trade restrictions and barriers to the spread of technology, fragmentation could be felt through restrictions on cross-border migration, reduced capital flows, and a sharp decline in international cooperation that would leave us unable to address the challenges of a more shock-prone world,” Georgieva said. She suggested that climate action, helping vulnerable countries deal with debt, and strengthening the international trade system could help confront fragmentation .

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