(Washington) A possible fragmentation of the world economy would have an impact both on potential growth at the global level, and in particular for emerging countries, and for the global financial system, according to two reports by the International Monetary Fund (IMF), published Wednesday.
These data come from the chapters of the Global Financial Stability Report (GFSR) and the World Economic Outlook (WEO), which are to be published in their final version next Tuesday, on the occasion of the spring meetings of the IMF and the World Bank (WB).
According to the data already published, the geopolitical tensions between the main economic powers will lead to a drop in direct investments abroad (FDI) in favor of investments within the borders of the States, causing, in the long term , a 2% loss in global growth.
Among the symbols of this new approach, following the pandemic and which aims in particular to bring production sites closer together and secure supply chains, the report cites the major climate plan (IRA) of the United States as well as the proposed regulation European Union in favor of a zero-carbon industry, currently under discussion.
According to IMF data, FDI to Asia in particular began to decline in 2019 and has only seen a relative increase in recent quarters, with the exception of investments in China, which have not recovered. .
However, since the 2008 crisis, FDI is increasingly directed towards countries considered as friends, for more than 50% of them now, while those towards geographically close countries reach 38% of the total volume.
A development that is detrimental to emerging and developing countries, according to the IMF, which are nevertheless those who have the most needs in this area.
On the financial sector side, the fragmentation, which has become apparent since the Russian invasion of Ukraine and the sanctions against a number of Russian financial institutions, carries the risk of higher costs for banks and a decline in their profitability with, ultimately, a reduction in their ability to finance the economy.
However, according to data from the Fund, an increase in geopolitical tensions leads to a reduction in investments abroad, as financial institutions wish to reduce risks.
For States, by reducing financial flows, the risk is to see the interest rates of their debt increase which, coupled with a decline in economic growth, would mean a larger share of income dedicated to the repayment of public debt. .
