The International Monetary Fund (IMF) on Thursday reiterated that the cost of fragmentation would be significant, noting that global Gross Domestic Product (GDP) could fall by 4.5 pct in extreme “de-risking” scenarios.
“We do see some initial signs of de-risking and fragmentation in the data that we’re looking at,” IMF spokesperson Julie Kozack said at a press briefing in response to a question from Xinhua. Certain foreign direct investment (FDI) is increasingly flowing among geopolitically aligned countries, supply chains are lengthening and there is gradual increase in trade restrictions over the last five years or so, Kozack said. Citing a recent research released in the IMF’s Regional Economic Outlook for Asia & Pacific in October 2023, the spokesperson said IMF staff looked at the economic implications of “de-risking” strategies. “It found that there can be a drag on growth from some of these strategies. So for example, the study finds that global GDP could fall by 1.8 percent in certain scenarios,” Kozack said. She noted that in a more “extreme” scenario – “a full reshoring scenario” – global GDP could decline by 4.5 percent.
In a recent interview with CNN, IMF Managing Director Kristalina Georgieva warned that allowing fragmentation of the global economy to continue could ultimately reduce global GDP even more significantly. “So we are all better off to find ways to reduce frictions, to concentrate on security concerns that are real and meaningful, and not go willy-nilly in fragmenting the world economy. We would end up with a smaller pie,” said Georgieva.