Economic gloom will deepen if war in Ukraine leads to reversal of globalisation, IMF warns

Global economic misery will deepen if the world splits into separate geopolitical blocs in light of Russia’s invasion of Ukraine.

On the eve of the World Economic Forum in Davos, IMF chief Kristalina Georgieva said people in rich and poor countries would suffer if decades of globalization were reversed.

In a blog post, she warned business leaders were descending on Davos at a time when the global economy faced its biggest test since World War II.

She said the world was facing a ‘confluence of calamities’ caused by the pandemic, high food and energy prices, tighter financial conditions, disrupted supply chains and the threat of change. climatic.

“Tensions over trade, technology standards and security have been rising for many years, undermining growth and confidence in the current global economic system,” she added.

“Trade policy uncertainty alone reduced global gross domestic product in 2019 by almost 1%, according to an IMF study.

“And since the start of the war in Ukraine, our monitoring indicates that around 30 countries have restricted trade in food, energy and other key commodities.

“The costs of further disintegration would be enormous in all countries.

“And people at all income levels would be affected – from well-paid professionals and middle-income factory workers who export, to low-wage workers who depend on food imports to survive.

“More people will embark on perilous journeys to seek opportunities elsewhere.”

His comments come amid growing fears that the world is splitting into two economic blocs that could put an end to globalisation.

China and Russia are feared to create a financial system to compete with the West after Russian banks were kicked out of the Swift global payment messaging system and China’s UnionPay aided the Kremlin after Visa and MasterCard suspended their operations in the country.

Fragmentation also risks creating two different technology standards and reserve currencies, potentially causing a permanent breakdown that could hurt global growth.

Ms. Georgieva proposed strengthening the global system by lowering trade barriers, creating new deadlines for debt clearance, creating a new global digital payment platform and stepping up efforts to fight climate change.

She added: “Over the past three decades, flows of capital, goods, services and people have transformed our world, aided by the diffusion of new technologies and ideas.

“These forces of integration have boosted productivity and living standards, tripled the size of the global economy, and lifted 1.3 billion people out of extreme poverty. But the successes of integration have also bred complacency. .

“There is no silver bullet to combat the most destructive forms of fragmentation,” she added. “But by working with all stakeholders on pressing common concerns, we can begin to weave a stronger and more inclusive global economy.”