The International Monetary fund has warned increasing protectionism could further heighten global economic shocks.
According to the Bretton Woods Institute, greater protectionism could lead to fragmentation, and even split nations into rival blocs just as fresh shocks expose the global economy’s fragility.
“While estimates of the cost of fragmentation vary, greater international trade restrictions could reduce global economic output by as much as 7 percent over the long term, or about $7.4 trillion in today’s dollars. That’s equivalent to the combined size of the French and German economies, and three times sub-Saharan Africa’s annual output,” the Fund said.
Calling for more deliberate global cooperation, the global lender noted that international institutions can play a vital role, bringing countries together to help solve global challenges.
The Fund noted that signs of cooperation are faltering as new trade barriers are introduced annually hitting almost 3,000 in 2022. IMF research has shown that geopolitical alignments increasingly influence both foreign direct investment and portfolio flows.
“Other forms of fragmentation—like technological decoupling, disrupted capital flows, and migration restrictions—will also raise costs. In addition, global flows of goods and capital have leveled off since the global financial crisis.
“The IMF continues to underscore that the international community, supported by global institutions such as ours, should pursue targeted progress where common ground exists and maintain collaboration in areas where inaction would be devastating.
“Policymakers need to focus on the issues that matter most not only to the wealth of nations but also to the economic well-being of ordinary people. They must nurture the bonds of trust among countries wherever possible so they can quickly step up cooperation when the next major shock comes,” Kristalina Georgieva, IMF President said.
