By Onome Amuge.
The International Monetary Fund (IMF) has warned that greater international trade restrictions could reduce global economic output by as much as 7 per cent over the long term, or about $7.4 trillion in today’s dollars.
This is as global co-operations keep declining over rising geopolitical tensions, while policy makers and companies are becoming wary of sharing technology or integrating supply chains.
Other forms of fragmentations including technological decoupling, disrupted capital flows, and migration restrictions are also expected to raise costs, as the IMF research shows geopolitical alignments increasingly influence both foreign direct investment and portfolio flows.
The economic loss from faltering global co-operations, according to the international financial institution, is equivalent to the combined size of the French and German economies, and three times sub-Saharan Africa’s annual output. The IMF, in the report titled “the high cost of global economic fragmentation”, also disclosed that new trade barriers introduced annually have nearly tripled since 2019 to almost 3,000 as at 2022.
“In a shock-prone world, economies must be more resilient—individually and collectively. Cooperation is critical, but greater protectionism could lead to fragmentation, and even split nations into rival blocs just as fresh shocks expose the global economy’s fragility,” IMF stated.
Kristalina Georgieva, IMF managing director noted that while estimates of the cost of fragmentation vary, more deliberate global cooperation clearly is needed, emphasising that international institutions can play a vital role, bringing countries together to help solve global challenges.
“The IMF urged the international community, supported by global institutions, to pursue targeted progress where common ground exists and maintain collaboration in areas where inaction would be devastating.
Policymakers were also advised on the need to focus on the issues that matter most not only to the wealth of nations but also to the economic well-being of ordinary people.
According to Georgieva, “They (policymakers) must nurture the bonds of trust among countries wherever possible so they can quickly step up cooperation when the next major shock comes.”