According to the International Monetary Fund (IMF), a severe fragmentation could cost the global economy up to 7% of GDP.
However, this is the worst-case scenario. The IMF also stressed that fragmentation could shave only 0.2% off of global GDP. What is more, the prospects of international trade are also grim.
The economic integration that prevailed in the 20th century may come to an end due to mounting geopolitical tensions. "The COVID-19 pandemic and Russia’s invasion of Ukraine have further tested international relations and increased skepticism about the benefits of globalization," the IMF pointed out.
The losses could reach 8-12% in some countries. Apart from that, the IMF also warned earlier that the global economy may be crippled by monetary tightening.
Kristalina Georgieva, the Managing Director of the International Monetary Fund, assumes that the consequences might be devastating. She also touched upon the problem of restrictions on cross-border migration and a sharp decline in capital flows. The global economy experienced several shocks last year associated with geopolitical escalation and various economic challenges. She pointed out that the world is becoming more prone to shocks. This is why it is possible to fight fragmentation by maintaining a pragmatic stance.
The IMF recommends focusing on three areas to tackle fragmentation: strengthening the international trade system, helping vulnerable countries to deal with debt, and stepping up climate action.
