A severe fragmentation of the global economy after decades of increasing economic integration could reduce global economic output by up to 7%.
But the losses could reach 8-12% in some countries, if technology is also decoupled, the International Monetary Fund said in a new staff report.
Tne IMF said even limited fragmentation could shave 0.2% off of global GDP, but said more work was needed to assess the estimated costs to the international monetary system and the global financial safety net (GFSN).
The note, released late Sunday, noted that the global flows of goods and capital had leveled off after the global financial crisis of 2008-2009, and a surge in trade restrictions seen in subsequent years.
“The COVID-19 pandemic and Russia’s invasion of Ukraine have further tested international relations and increased skepticism about the benefits of globalization,” the staff report said.
It said deepening trade ties had resulted in a large reduction in global poverty for years, while benefitting low-income consumers in advanced economies through lower prices.