The head of the International Monetary Fund said that 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 some retreat in political blocs towards China and the world," Kristalina Georgieva said. "The world will lose 1.5% of GDP just because of a split that could divide us into two trading blocs. That loss is $1.4 trillion."
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Georgieva said on the sidelines of the Asia-Pacific Economic Cooperation (APEC) Economic Leaders' Meeting that for Asia, the potential loss could be double, possibly reaching more than 3% of GDP, because the region is more integrated into the global value chain, according to Bloomberg, seen by Arabiya.net.
Georgieva said that while this would be a major damage to the global economy, the biggest factor hurting global growth remains the war in Ukraine. "The single most damaging factor for the global economy is war. The earlier the war ends, the better."
The International Monetary Fund warned that inflation hits developing countries the most and urged central bankers to continue their struggle to curb and mitigate price growth, especially with regard to food costs. The dollar's double-digit appreciation so far this year continues to cause headaches in emerging markets as investors flock to safe havens amid signs that much of the global economy could be heading into recession.
Georgieva said Asian countries must work together to overcome the split in order to sustain growth, especially in light of many other economic shocks from the coronavirus, to the war in Ukraine and the rising cost of living.
Additional fuel for the crisis
SHE SAID: If we add to these factors the fragmentation of the global economy, gasoline will be thrown on the fire. No one will benefit from it."
However, she said countries in Asia are better equipped to face economic shocks thanks to large reserves and cooperation within the region.
Regarding the growing risks of sovereign debt in developing countries, Georgieva said the IMF was "not yet alarmed but vigilant." About 25% of emerging markets trade in disaster areas, while 60% of low-income countries are in or near debt distress. Countries under pressure from the high cost of servicing dollar-denominated debt and the global economic environment were encouraged to act proactively and seek assistance early from the IMF.
The IMF's research department earlier this week struck its forecast in a sharper tone than last month, saying in a blog post that the difficulties were "enormous." The IMF last month cut its forecast for global growth next year to 2.7 percent, well below the 3.8 percent it had forecast in January. You see a 25% chance that growth will be less than 2%.
IMF calculations show that about a third of the global economy will experience at least two consecutive quarters of contraction this year and next, and that output lost until 2026 will be $4 trillion.
Georgieva pointed to the particular difficulties the EU faces due to the war in Ukraine, which could pressure the region's central banks to reverse efforts to tackle inflation very soon.
SHE SAID: In Europe, the situation is more difficult because the impact of the war in Ukraine is significant." "At least half of the EU could be in recession next year."