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IMF warns economic fragmentation would inflict steep costs

IMF leaders warned Monday that growing pressures undermining global integration, including an increase in trade barriers, threaten economic growth worldwide.

In a message to officials gathering in Davos, Switzerland, IMF chief Kristalina Georgieva and her deputy, Gita Gopinath, said, “The costs of further disintegration would be enormous across countries. And people at every income level would be hurt.”

The global economy faces a “confluence of calamities” with the fallout from the COVID-19 pandemic compounded by the war in Ukraine, but they warned that the trend towards restricting exports or breaking up global supply chains would undo years of progress.

Globalisation tripled the size of the worldwide economy and lifted 1.3 billion people out of extreme poverty, but since the Russian invasion of Ukraine in late February, 30 countries have imposed restrictions on trade in food, energy and other key goods, the IMF officials said.

They called on global leaders to resist those pressures and focus on improving cooperation and reducing trade barriers while also combating climate change and the growing debt burden in developing nations.

And rather than dismantling supply chains, or “reshoring” in favor of domestic producers, companies should diversify their imports, which can cut in half the economic losses due to supply disruptions.

“As policymakers and business leaders head to Davos, the global economy faces perhaps its biggest test since the Second World War,” they wrote.

“We have a choice: Surrender to the forces of geoeconomic fragmentation that will make our world poorer and more dangerous. Or reshape how we cooperate.”

After a two-year hiatus due to the pandemic, the World Economic Forum annual meeting will be held in person in the Swiss resort city this week.

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