The world’s economy is facing its biggest test since the Second World War, but geoeconomic fragmentation is hampering the ability to respond, according to the International Monetary Fund (IMF).
In a blog post published as the World Economic Forum opens in Davos, Switzerland, the IMF said only international cooperation can address issues which arose due to the global COVID-19 pandemic and were compounded by the war started by Russia’s invasion of Ukraine.
Managing director Kristalina Georgieva wrote the post along with Deputy MD Gita Gopinath and Ceyla Pazarbasioglu, Director of Strategy Policy and Review.
They said flows of capital, goods, services and people have transformed the world over the past three decades, boosting productivity and living standards, and tripling the size of the global economy.
But, inequalities of income, wealth, and opportunity have continued to worsen within too many countries for a long time—and across countries in recent years, they added.
“Tensions over trade, technology standards, and security have been growing for many years, undermining growth- and trust in the current global economic system. Uncertainty around trade policies alone reduced global gross domestic product in 2019 by nearly one percent, according to IMF research,” the blog post said.
“And since the war in Ukraine started, our monitoring indicates that around 30 countries have restricted trade in food, energy, and other key commodities.”
Further disintegration will hurt people across every income level across countries, from highly paid workers to middle income factory employees to low paid workers, with more likely to embark on perilous journeys to seek opportunities elsewhere.
Georgiva, Gopinath and Pazarbasioglu highlighted four priorities to reshape how countries cooperate going forward.
First, strengthening trade to increase resilience, because IMF research shows that diversification can cut potential GDP losses, and second stepping up joint efforts to deal with debt, to assist low-income countries with debt vulnerabilities to support both them and their creditors.
The third priority is to modernise cross-border payments to address the average cost of an international transfer, which is 6.3 percent, diverting $45 billion into the hands of intermediaries.
The fourth is to confront climate change, closing the gap between ambition and policy with a comprehensive approach combining carbon pricing, investment in renewables, and compensation for those adversely affected.
(Reporting by Imogen Lillywhite; editing by Seban Scaria)