The International Monetary Fund (IMF) in a recent statement has warned of “geoeconomic fragmentation” as policymakers and leaders are discussing at a World Economic Forum meeting in Davos, Switzerland.
In a note, IMF Director Kristalina Georgieva noted that the global economy is facing the biggest challenge since World War II with the Russian invasion of Ukraine adding to the double impact triggered by the Covid-19 effect. This has pushed economic growth to decline and pushed inflation to its highest level in decades.
Soaring food and energy prices are squeezing households around the world, while central banks are tightening monetary policy to curb inflation. This also puts pressure on those who are in debt among countries, companies and households.
When combined with a surge in uncertainty in financial markets and the ongoing threat of climate change, the IMF is of the view that the world has the potential to face a ‘disaster’.
According to Georgieva, “the IMF’s ability to respond has been limited by other factors such as the war in Ukraine which presents an increased risk of geoeconomic fragmentation.
Tensions over trade, technology and security standards have been increasing day by day over the years, undermining growth and confidence in the current global economic system. ”
He added that uncertainty around trade policy alone will reduce global GDP by almost 1% in 2019, based on IMF research. In a separate monitoring also showed that around 30 countries have restricted trade in food, energy and other major commodities.
Georgieva warned that further splits would result in huge global costs.
On the other hand, Carmine Di Sibio, global chairman and CEO of EY is of the view that although corporate transaction volumes have slowed there are signs that activity remains buoyant and industry players are exploring options to change their business patterns.
