Rising geopolitical tensions intensify economic fragmentation: IMF

By Ovunc Kutlu

ISTANBUL (AA) - The International Monetary Fund (IMF) warned Wednesday that rising geopolitical tensions intensify economic fragmentation around the world.

"Concerns about global economic and financial fragmentation have intensified in recent years amid rising geopolitical tensions, strained ties between the United States and China, and Russia’s invasion of Ukraine," it said.

"Financial fragmentation has important implications for global financial stability by affecting cross-border investment, international payment systems, and asset prices. This in turn fuels instability by increasing banks’ funding costs, lowering their profitability, and reducing their lending to the private sector," it added.

The IMF said investment funds are particularly sensitive to geopolitical tensions and tend to reduce cross-border allocations to countries with a diverging foreign policy outlook.

It stressed that tensions are transmitted to banks through the economy, as the effect of disruptions to supply chains and commodity markets on domestic growth and inflation could worsen credit losses for banks and further reduce profitability.