Before the opening of the Davos Forum, the IMF warned that global economic fragmentation would have a great impact on emerging countries.
Reporter | An Jing
The 2023 annual meeting of the World Economic Forum opened in Vosra, Switzerland on January 16th, local time. Against the background of multiple crises and the continuing conflict between Russia and Ukraine, the theme of this forum is "Cooperation in a Fragmented World".
The day before the opening of the forum, the International Monetary Fund (IMF) issued a report warning that in the worst case, global economic fragmentation will lead to a reduction of global economic output by as much as 7%. Weakening trade links will have the greatest impact on low-income countries and emerging economies.
The annual global risk report of Davos Forum also lists the rising cost of living, extreme weather and geo-economic confrontation as the three major risks in the short term.
At the same time, trade restrictions imposed by countries on goods, investment and services have greatly increased, especially after 2021.
The COVID-19 epidemic, geopolitical changes and Russia-Ukraine conflict have intensified countries’ concerns about economic security and supply chain resilience. The policy interventions taken by some countries in response to their concerns have had collateral consequences, one of which is that the world may slide to "uncontrolled geo-economic fragmentation".
The IMF predicts that the global GDP will decrease by 0.2% in the case of limited global economic fragmentation; In the case of serious fragmentation, global GDP will drop by nearly 7%, equivalent to the sum of annual GDP of Germany and Japan.
If the economic fragmentation is serious and the technology is completely decoupled, the GDP of some countries may fall by as much as 12%.
In addition to technical decoupling and trade restrictions, economic fragmentation is also reflected in the immigration problem, the decline in capital flows and the sharp decline in international cooperation. The IMF pointed out that economic fragmentation will prevent low-income people in developed economies from buying cheap imported goods.
The fragmentation of the global economy will also seriously impact small open market economies. Because countries are highly dependent on open trade, most Asian countries will suffer. At the same time, emerging and developing economies will not benefit from the technology spillover effect, and the gap between developing and developed economies will further widen.
To combat global economic fragmentation, the IMF has put forward three main tasks, including strengthening the international trading system, helping vulnerable countries to deal with debt problems, and strengthening actions against climate change.
In international trade, the IMF mentioned that the global trade growth predicted by the IMF would decline this year, and stressed that in this context, it is more important for countries to cancel the previous trade restrictions and distorting subsidies.
On the national debt, it will be more difficult for a country to solve the debt crisis if its main creditors are in opposition because of geopolitics. The IMF pointed out that at present, 15% of low-income countries have fallen into debt difficulties, and another 45% are facing high risk of debt difficulties; Among emerging economies, about 25% are at high risk.
The IMF hopes that this week’s discussion on related issues at the Davos Forum will send a positive signal to strengthen global economic integration.
UN Secretary-General Guterres, European Commission President Ursula von der Leyen, European Central Bank President Lagarde and IMF Managing Director Georgieva will all attend the meeting.
The report divides the major global risks into short-term risks within two years and long-term risks within 10 years. Among the short-term risks, the cost of living crisis, natural disasters and extreme weather events, and geo-economic confrontation are the three main risks. Social cohesion fading and social polarization are also one of the main short-term risks.
Failure to mitigate climate change, failure to take climate change adaptation actions, natural disasters and extreme weather events are the three major long-term risks.
The report pointed out that the rising cost of living is generally regarded as a short-term problem and will subside after two years. However, the cost of living crisis will continue to impact more vulnerable people and intensify social and political turmoil.
In the short term, governments and central banks will continue to face inflationary pressure, the possible extension of the conflict between Russia and Ukraine, the bottleneck of supply chain caused by the epidemic and the decoupling of supply chain caused by economic war. In the next 10 years, global economic fragmentation, geopolitical tensions and bumpy road to economic reconstruction may lead to large-scale debt problems.
With the economic war becoming the norm, the conflicts between major countries in the world will increase in the next two years. The report warns that when geopolitics is considered more important than economic considerations, insufficient production and rising prices may become long-term problems. Hot spots are crucial to the effective operation of the global financial and economic system, especially in the Asia-Pacific region.
Saadia Zahidi, executive director of the World Economic Forum, warned that countries still haven’t invested enough resources to deal with the crisis in the case of multiple crises. At present, this "era of low growth, low investment and low cooperation" further weakens the ability of countries to cope with future shocks.