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WASHINGTON (Reuters) – A severe fragmentation of the global economy after decades of increasing economic integration could reduce global economic output by up to 7%, but the losses could reach 8-12% in some countries, if technology is also decoupled, the International Monetary Fund said in a new staff report.<\/p>\n<\/div>\n
Tne IMF said even limited fragmentation could shave 0.2% off of global GDP, but said more work was needed to assess the estimated costs to the international monetary system and the global financial safety net (GFSN).<\/p>\n<\/div>\n
The note, released late Sunday, noted that the global flows of goods and capital had leveled off after the global financial crisis of 2008-2009, and a surge in trade restrictions seen in subsequent years.<\/p>\n<\/div>\n
“The COVID-19 pandemic and Russia\u2019s invasion of Ukraine have further tested international relations and increased skepticism about the benefits of globalization,” the staff report said.<\/p>\n<\/div>\n
It said deepening trade ties had resulted in a large reduction in global poverty for years, while benefitting low-income consumers in advanced economies through lower prices.<\/p>\n<\/div>\n
The unraveling of trade links “would most adversely impact low-income countries and less well-off consumers in advanced economies,” it said.<\/p>\n<\/div>\n
Restrictions on cross-border migration would deprive host economies of valuable skills while reducing remittances in migrant-sending economies. Reduced capital flows would reduce foreign direct investment, while a decline in international cooperation would pose risks to provision of vital global public goods.<\/p>\n<\/div>\n
The IMF said existing studies suggested that the deeper the fragmentation, the deeper the costs, with technological decoupling significantly amplifying losses from trade restrictions.<\/p>\n<\/div>\n
It noted that emerging market economies and low-income countries are likely to be most at risk as the global economy shifted to more \u201cfinancial regionalization\u201d and a fragmented global payment system.<\/p>\n<\/div>\n
“With less international risk-sharing, (global economic fragmentation) could lead to higher macroeconomic volatility, more severe crises, and greater pressures on national buffers,” it said.<\/p>\n<\/div>\n
It could also weaken the ability of the global community to support countries in crisis and complicate the resolution of future sovereign debt crises.<\/p>\n<\/div>\n