Industry Desk: The head of the International Monetary Fund (IMF) said that the rise of trade barriers against China and other countries over the past year could cost the world economy $1.4 trillion, in addition to the severe damage caused by the war in Ukraine.
“What I am hoping to see is some reversals in policy blocks towards China and globally,” IMF Chief Kristalina Georgieva told in Bangkok yesterday.
“The world is going to lose 1.5% of gross domestic product just because of division that may split us into two trading blocs. This is $1.4 trillion,” she told.
For Asia, the potential loss could be twice as severe, or more than 3% of GDP, because the region is more connected into the global value chain, Georgieva stated this week on the sidelines of the Asia-Pacific Economic Cooperation’s economic leaders summit.
While that would constitute significant damage to the global economy, the biggest factor hurting global growth remains the war in Ukraine, Georgieva said. “The single most damaging factor for the world economy is the war,” she said. “The sooner the war ends, the better.”
The IMF has also warned that inflation is having the greatest impact on developing nations, encouraging central bankers to continue their efforts to curb price growth and provide relief, particularly with food prices. The dollar’s double-digit rise so far this year continues to wreak havoc on emerging markets as investors flee to safe havens amid indications that a large portion of the global economy may be headed for disaster.
Georgieva stated that Asian nations must collaborate to overcome fragmentation in order to preserve growth, particularly in light of the several other economic shocks resulting from Covid-19, the war in Ukraine, and the rising cost of living.
“If we add on top of it the fragmentation in the world’s economy, it will be throwing gasoline on a fire,” she said. “Nobody will benefit from it.”
But, she stated that Asian economies are considerably better prepared to face economic crises due to huge reserves and regional collaboration.
On the rising risk of sovereign debt in developing countries, Georgieva said the IMF is “not yet alarmed but alert.” About 25% of emerging markets trade in distressed territory, while 60% of low-income countries are at or near debt distress. She encouraged nations strained by the rising cost of servicing dollar-denominated debt and the global economic environment to act preemptively and seek help early from the fund.
Bangladesh was the latest economy to reach a staff-level agreement with the IMF amid dwindling foreign reserves, securing a $4.5 billion loan earlier this month that’s subject to IMF management and board approval in the coming weeks.
The IMF’s research department earlier this week cast its outlook in a starker tone compared to last month, saying in a blog post that the difficulties are “immense.” The fund last month cut its forecast for global growth next year to 2.7%, far below the 3.8% it was predicting in January. It sees a 25% probability that growth will be less than 2%.
According to IMF estimations, over one-third of the global economy will experience at least two consecutive quarters of decline this year and next, with lost output totaling $4 trillion through 2026.
Georgieva drew attention to the unique challenges facing the European Union as a result of the conflict in Ukraine, which could put pressure on the region’s central banks to abandon efforts to combat inflation prematurely.
“In Europe, the situation is more difficult as the impact of war in Ukraine is significant,” she said. “Half of the EU at least may be in recession next year.”
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