World Economy’s Disintegration Into Regional Power Blocs Will Wipe Out Open Trade Gains: IMF

New Delhi, Dec 12 (KNN) The global economy is on the edge of a second cold war that could “annihilate” progress made since the collapse of the Soviet Union, Gita Gopinath, IMF’s first deputy managing director has warned.

The increasing fragmentation of the world economy into regional power blocs – centred around the US and China – risked smearing out trillions of dollars in global output, she said on Monday.

“If we descend into cold war two, knowing the costs, we may not see mutually assured economic destruction. But we could see an annihilation of the gains from open trade,” said the senior official.

Warning that the world was at a “turning point” as tensions mounted between the planet’s most powerful nations, Gopinath urged governments to pull back from the brink and work together on shared economic priorities where possible.

Her intervention comes amid a slowdown in international trade since Russia’s invasion of Ukraine in February 2022 inflamed pre-existing tensions between the US and European nations in the west and China and Russia in the east.

“While there are no signs of broad-based retreat from globalisation, fault lines are emerging as geo-economic fragmentation is increasingly a reality. If fragmentation deepens, we could find ourselves in a new cold war,” she said.

Setting out the potential damage from a collapse in trade between the two blocs – divided along the lines of the UN vote on the 2022 Ukraine resolution – Gopinath said the world economy could expect to see losses worth about 2.5 per cent of gross domestic product (GDP), or about USD 2.5tn (£2tn) if trade was eliminated entirely.

(KNN Bureau)