The managing director of the International Monetary Fund (IMF) has warned that the world is on the edge of geo-economic fragmentation, which she believes could add more “cold water” to already anemic global growth.
Speaking by video-link at the Brussels Economic Forum on Wednesday, Kristalina Georgieva called for cooperation at a time when growth across the globe is extremely weak by historical standards.
“After decades of increasing global integration, there is a growing risk that the world may split into rival economic blocs,” the IMF chief said. “And that’s a scenario that would be bad for everyone, including for people in Europe.”
She warned that growth prospects were increasingly bleak at a time when the global outlook is weak both in the near and medium term. The IMF projects growth to remain around 3% over the next five years, the lowest medium-term forecast in more than three decades.
“And yet, central bankers cannot take their eyes off the ball until stubborn inflation is firmly under control,” Georgieva pointed out. “The required monetary tightening is weighing on growth and exposing some financial vulnerabilities.”
Reviving multilateral cooperation is vital for long-term growth everywhere, according to the official, who warned that trade fragmentation could cost up to 7% to the global economy in the long term.
That’s “roughly equivalent to the combined annual output of Germany and Japan,” she said, adding that some nations could see GDP losses of up to 12% if technological decoupling is added.
“We cannot ignore these costs,” Georgieva stressed.
The IMF boss had previously said that the shocks of the past few years, including the Covid pandemic, Russia-Ukraine conflict, and spike in interest rates after years of loose monetary policy, have been a drag on the global economy.