Russia’s military operation in Ukraine as well as the subsequent Western sanctions on Moscow might push a global economy into geopolitical fragmentation, the IMF warned inside a report published on This summer 26.
“ A serious risk to the medium-term outlook is that the war in Ukraine will certainly contribute to fragmentation of the entire world economy into geopolitical blocs with distinct technology criteria, cross-border payment systems, plus reserve currencies, ” the report states.
According to the IMF, this type of split would prevent the worldwide community from jointly dealing with global problems.
“ Fragmentation might also diminish the effectiveness of multilateral assistance to address climate change, with all the further risk that the present food crisis could become the norm, ” the authors of the report warn.
The report notes that will traditional economic and economic risks have been exacerbated by the conflict in Ukraine as well as its repercussions. Such risks currently include the effect of tighter monetary policy, slowing economic development in China and rising energy prices.
However , according to the report, there is certainly “ limited evidence of reshoring, ” or trade deglobalization, at the moment, and overall, global business “ has been more resilient than expected because the start of the [Covid-19] pandemic , ” which may be taken as a positive sign.
Still, the IMF predicts that increasingly limited sanctions on Russia will eventually result in a drop in Russia’s oil exports towards the global market and a “ decline to zero ” of Ruskies gas exports to Europe, which in turn would make “ inflation expectations a lot more persistently elevated ” across the globe and tighten financial conditions as governments make an effort to deal with rising prices.
“ In this scenario, the shock might have a widespread impact, since higher global commodity costs and tighter monetary and financial conditions would have an effect on almost all countries, albeit in order to extents. Europe would be especially affected in this scenario, with 2023… near-zero regional growth, ” the IMF states.
Still, according to analysts, “ taming inflation should be the very first priority for policymakers” despite the costs associated with tighter monetary policy, because “ delay will only exacerbate [the costs]. ”