Tensions between the US and China are leading to a “fragmentation of the world” and the transfer of production to more friendly jurisdictions. The damage to the global economy from this situation could amount to 1% of global GDP in five years and 2% in the long term, according to IMF experts.
An article with a risk analysis is published on the fund’s website. As Bloomberg notes, this analysis became “one of the most high-profile” since the coronavirus pandemic on global economic damage.
“Overall, a fragmented world is likely to be poorer. While there may be relative—and possibly absolute—benefits from relocation, such gains are subject to considerable uncertainty. Fund experts also note that the dynamics of long-term investment in financial markets or production is already showing the consequences of growing tensions between Washington and Beijing. According to the organization, foreign direct investment from the second quarter of 2020 to the fourth quarter of last year fell by almost 20% compared to pre-COVID levels.
Growing distrust between the US and China could also affect the banking system, as disruptions in supply chains and commodity markets harm domestic economic growth and stimulate inflation, IMF experts emphasize. This pressure could force banks to take less risk and reduce lending, further slowing economic growth.
Source: Rosbalt
Mario Twitchell is an accomplished author and journalist, known for his insightful and thought-provoking writing on a wide range of topics including general and opinion. He currently works as a writer at 247 news agency, where he has established himself as a respected voice in the industry.
