Fragmentation may cost global economy up to 7% of GDP: IMF report

By Ovunc Kutlu

ISTANBUL (AA) - Cost of trade fragmentation could range from 0.2% to almost 7% of global gross domestic product (GDP), the International Monetary Fund (IMF) said in a report on Monday.

The 7% GDP is approximately equivalent to the combined annual economic output of Germany and Japan, it noted.

"If technological decoupling is added to the mix, some countries could see losses of up to 12 percent of GDP," said the report titled 'Confronting Fragmentation Where It Matters Most: Trade, Debt, and Climate Action.'

"Fragmentation could make it even more difficult to help many vulnerable emerging and developing economies that have been hard hit by multiple shocks," it added.

The report said that policymakers face various challenges, such as geopolitical tensions, slowdown in global economy, climate change, cost-of-living crisis and high debt levels.

The IMF warned that the world faces "a new Cold War" that could see it fragment into rival economic blocs, which could leave everyone poorer and less secure.

"Trade tensions between the world’s two largest economies have been rising amid a global surge in new trade restrictions. Meanwhile, Russia’s invasion of Ukraine has caused not only human suffering, but also massive disruptions of financial, food, and energy flows across the globe," it said.

The agency stressed that strengthening the international trade system, helping vulnerable countries to deal with debt crisis, and improving climate action are some major steps to fight fragmentation.