IMF Director: Trade gap could cost global economy $1.4 trillion

The head of the International Monetary Fund said rising trade barriers against China and other countries over the past year could cost the global economy $1.4 trillion, on top of the severe damage caused by the war in Ukraine.

“What I hope to see is a regression of political blocs towards China and the world,” said Kristalina Georgieva. “The world will lose 1.5% of GDP just because of the division that could divide us in two commercial blocks. The value of that loss is $1.4 trillion.”

Georgieva added on the sidelines of the meeting of economic leaders of the Asia-Pacific Economic Cooperation Organization that for Asia the potential loss could be doubled and could reach more than 3% of GDP, because the region is more integrated in the global value chain, he told Bloomberg, and Al Arabiya.net reviewed it.

Georgieva said that while this would severely damage the global economy, the most damaging factor for global growth remains war in Ukraine. “The single most damaging factor to the global economy is war,” she said, “the sooner war ends, the better.”

In turn, the International Monetary Fund has warned that inflation hits countries the hardest in via development and urged central bankers to continue their struggle to curb and mitigate price growth, in particularly with regard to food costs. The double-digit appreciation of the dollar so far questhe year continues to cause headaches in emerging markets as investors pour in in safe havens amid signs that much of the global economy could be headed for recession.

Georgieva said Asian countries must work together to bridge the gap in order to sustain growth, especially in light of the many other economic shocks from the coronavirus, to war in Ukraine and the rising cost of living.

further fuel for the crisis

He said: “If we add to these factors the fragmentation of the global economy, we will add fuel to the fire. No one will benefit.”

However, he said, Asian countries are better equipped to withstand economic shocks thanks to large reserves and intra-regional cooperation.

As for the growing sovereign debt risks in the countries in via of development, Georgieva said that the IMF “is not yet alarmed but vigilant”. About 25% of emerging markets trade in regions in difficulties, while 60% of low-income countries are in or close to a debt crisis. It has emboldened countries under pressure from the high cost of servicing denominated debt in dollars and the global economic environment to act in proactively and to request assistance from the Fund in a timely manner.

The IMF’s research department earlier this week put its forecasts in a sharper tone than last month, saying in a post on the blog that the difficulties were “enormous”. Last month the Fund lowered its forecast for next year’s global growth to 2.7%, far below the 3.8% expected in January. You see there is a 25% chance that the growth will be less than 2%.

Calculations by the International Monetary Fund show that about a third of the global economy will experience at least two consecutive quarters of contraction questyear and next, and that the loss of production through 2026 will be $4 trillion.

Georgieva underlined the particular difficulties the EU faces as a result of the war in Ukraine, which could put pressure on central banks in the region to cancel efforts to tackle inflation very soon.

“In Europe, the situation is more difficult because of the impact of the war in Ukraine is big,” he said. “At least half of the European Union could be in recession next year”.

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