Overcoming Fragmentation: 'Stay Open, Connected and Balanced', Remark by Kristalina Georgieva, Managing Director, IMF at APEC Leaders’ Summit
IMF News, November 19, 2022
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- Published: November 19, 2022
The World has Changed
- Pandemic and war: the COVID pandemic and the war in Ukraine produced lasting economic disruptions.
- Permanent output loss from the pandemic:
- 5.3% of global GDP.
- In Asia: a loss of 9% of GDP.
- Energy shock: the war in Ukraine caused a tremendous energy price shock.
- Growth and macro shifts:
- Global growth slowed from 6.1% in 2021 to 3.1% in 2022.
- Consequences: high inflation, high and rising debt levels, and an increase in inequality in many countries.
- Geopolitical and macro environment: shift from a relatively predictable world with low inflation and low interest rates to a more volatile, uncertain, and fragmented world—especially in terms of trade—with high inflation and high interest rates.
The Global Economy and APEC are Slowing
- Near-term projection and outlook:
- "The IMF is projecting global growth to slip to 2.7% next year."
- "Most APEC countries are decelerating and at least one third of the world is going to be in recession."
- "The three major engines of global growth -- U.S., China, and Europe -- are slowing down simultaneously."
- Regional and sectoral notes:
- Bright spots: ASEAN; some countries benefiting from terms of trade improvements (for example, in the Gulf).
- Downside risks predominate.
- Inflation and policy trade-offs:
- "The risk of inflation is a clear and present danger."
- Policy guidance: fiscal policy must target the most vulnerable without undermining monetary policy and the fight against inflation — "with monetary policy stepping on the brakes, fiscal policy should not step on the accelerator."
- Emerging markets and financial stability risks:
- Negative spillovers from tightening by major central banks due to currency depreciation and higher borrowing costs.
- Financial stability risks include volatile capital flows, higher debt service, and higher leverage especially in the private sector.
- Banks are sound, but non-bank financial institutions that have not been regulated are a concern.
- Concerning developments in the crypto market.
- Climate risk:
- "For the first time this year, we have seen climate shocks across all continents, with Asia-Pacific disproportionately affected."
- Since 1989, 36% of climate-related disasters have occurred in this region.
- Fragmentation risk:
- Warning: risk of "sleepwalking into a poorer, less secure world" and drifting away from factors that improved global welfare.
APEC Gains Most from Integration and Risks Losing Most from Fragmentation
- APEC composition and integration benefits:
- APEC comprises "21 economies representing 60% of global GDP."
- Asia: strongest regional value chains.
- Latin America's biggest trading partners are across the Pacific.
- "Two-thirds of U.S. imports comes from APEC."
- Development impact of integration:
- Over the last three decades, "1.5 billion people were lifted out of poverty and hundreds of millions entered the middle class."
- Cost of fragmentation (IMF analysis):
- If the world divided into two distinct blocs with little or no trade between them:
- Output would drop by more than 1.5% of global GDP: a loss of about $1.5 trillion.
- In Asia, losses would double to more than 3 percent of GDP.
- Additional human costs: poverty, hunger, and social unrest.
- Imperative: fragmentation need not be inevitable.
Responding to Fragmentation: Stay Open, Connected, Balanced
- Summit message: three recent summits in Asia delivered one message: work together.
- Endorsed APEC theme: 'Open, Connect, Balance.'
- Policy actions:
- Stay open: rollback trade restrictions; remove non-tariff barriers.
- Stay connected: support strong regional agreements like the Comprehensive and Progressive Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership; work to make the WTO stronger; leverage digitalization to shape a better-connected world and improve people's lives.
- Stay balanced: ensure growth is more inclusive to protect vulnerable people and gender equality; ensure growth is more sustainable and addresses climate change.
The IMF is APEC's Partner
- IMF actions to help members navigate shocks:
- Emergency financing to 96 countries;
- A historic $650 billion SDR allocation;
- A new Resilience and Sustainability Trust—long-term financing for structural transformation to address the risk of climate change.
- Commitment: "The IMF is committed to partnering even more closely with APEC."
Facing Shocks, Building Resilience: Together
- Premise: "We live in a more shock-prone world. That means more shocks will come."
- Resilience priorities:
- Resilient people: educated and healthy, with strong social safety nets.
- Resilient economy: strong macroeconomic fundamentals and agile, adaptable policies.
- Resilient planet: pass on a sustainable planet to the next generation.
- Closing conviction: "I am convinced that we can do this -- together."
Remark by Kristalina Georgieva, Managing Director, IMF at APEC Leaders’ Summit (As prepared for delivery).