It's been decades since we witnessed an increase in economic integration. But now, the global economy is at risk of severe fragmentation due to a multitude of risks. That's why there is a chance that the global economy put will decrease by 7%.
In fact, there are many countries where the economic output loss will touch 8% to 12%. This scenario could become a reality if the decoupling of technology happens, according to a new report by IMF.
In addition, the report also revealed that in the case of limited fragmentation, a decrease of 0.2% in global GDP would happen. But the IMF also made it clear that more work was required to properly assess the damage to the GFSN and the international monetary system.
According to the IMF report, the factors which are risking global economic growth are the Russia-Ukraine war and the COVID pandemic. In fact, these factors are risking globalization - A phenomenon that has totally changed how trade and economies function around the world.
The IMF said that deep trade ties due to globalization led to a reduction in poverty around the globe. As a result, the consumers belonging to the low-income bracket benefited from the lower prices.
But, rising risks surrounding the global sentiment and deterioration of trade links will affect the same consumers. In fact, the countries where most of the citizens are from low-income brackets will be affected the most.
For starters, a restriction on cross-border migration will lead to lower remittances. In addition, a reduction in the FDI (foreign direct investment) will also likely happen with reduced capital flows. Similarly, international cooperation is also on a decline which is increasing the prices of public goods.
That's why the IMF believes that if the fragmentation runs deeper, it will lead to deeper costs on the economic front.
And the countries which are at the most risk are those belonging to the low-income market and especially those from the emerging markets.