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World

Geopolitical fragmentation could cut global growth by 2%: IMF

  • Research finds growing geopolitical tensions causing reallocation of FDI away from countries that are geographically close and towards those that are geopolitically close
Published April 5, 2023

WASHINGTON: Growing geopolitical fragmentation around the world, including the US-China trade war and the Russian invasion of Ukraine, could cut global growth by two percent, the International Monetary Fund (IMF) said Wednesday.

Research by the IMF found that growing geopolitical tensions were causing a reallocation of foreign direct investment (FDI) away from countries that were geographically close and towards those that were geopolitically close, like the US and Europe.

This reallocation of FDI has the potential to cause serious damage to emerging market economies, the IMF said, since they are more reliant on inflows of investment from more geopolitically distant countries.

‘Reshaping Development for a New Era’: ‘Spring meetings’ of WB, IMF will start next week

“In general, a fragmented world is likely to be a poorer one,” IMF officials wrote in a blog post published Wednesday to accompany the research.

The IMF also published research on Wednesday outlining the impact to the banking sector of geopolitical fragmentation, highlighting the cost to Russia and its allies of the 2022 invasion of Ukraine.

“Cross-border banking and portfolio debt flows to Russia and its allies (countries that rejected the motion in the United Nations in March 2022 to condemn Russia’s war on Ukraine) have reversed sharply, with allocations falling by about 20 and 60 percent relative to prewar levels, respectively,” IMF officials wrote in a blog post.

The report found that rising tensions between investing and recipient countries like the US and China had reduced the overall bilateral cross-border allocation of portfolio investment and bank claims by around 15 percent.

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Tulukan Mairandi Apr 05, 2023 09:23pm
Pakistan growth forecast is merely 0.4%. If that's cut by 2%, it means Pakistan economy will contract by 1.6%. While yearly population growth is 1.8%. The odds of a default in 2023 is 99%. Withdraw your savings and hold it tight. And keep weapons at home.
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M.A Apr 06, 2023 11:43am
Unfortunately, things are getting worse since the events of September 11, 2001, especially on the economic, social and security levels in all parts of the world, specifically against developing countries.
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