The High Cost of Global Economic Fragmentation
IMF Blog, August 28, 2023
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Bibliographic details
- Authors: The Editors
- Published: August 28, 2023
Key findings
- Growing trade restrictions could reduce global economic output by as much as 7 percent over the long term.
- The potential long-term output loss is estimated at about $7.4 trillion in today’s dollars.
- That $7.4 trillion figure is presented as equivalent to the combined size of the French and German economies, and three times sub-Saharan Africa’s annual output.
- New trade barriers introduced annually have nearly tripled since 2019 to almost 3,000 last year.
Drivers and broader forms of fragmentation
- Increased protectionism that reverses economic integration.
- Technological decoupling.
- Disrupted capital flows, with IMF research showing geopolitical alignments increasingly influence both foreign direct investment and portfolio flows.
- Migration restrictions.
- Global flows of goods and capital have leveled off since the global financial crisis.
Implications
- Fragmentation would undermine cooperation needed to protect against new shocks and address global challenges.
- In a shock-prone world, economies must be more resilient both individually and collectively.
- Failure to maintain cooperation could leave the global economy more vulnerable when the next major shock occurs.
Policy recommendations and roles for institutions
- Pursue more deliberate global cooperation and targeted progress where common ground exists.
- Maintain collaboration in areas where inaction would be devastating.
- International institutions can play a vital role by bringing countries together to help solve global challenges.
- The IMF underscores the need for policymakers to focus on issues that matter most to the wealth of nations and the economic well-being of ordinary people.
Notable statement
- “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,” Georgieva wrote in Foreign Affairs. “They must nurture the bonds of trust among countries wherever possible so they can quickly step up cooperation when the next major shock comes.”
Source: The High Cost of Global Economic Fragmentation (IMF blog, August 28, 2023).