IN a grim forecast for the world economy, the International Monetary Fund (IMF) in its report on Wednesday has warned that the growing geopolitical fragmentation around the world, exemplified by the US-China trade war and the Russian invasion of Ukraine, could cut global output by two percent over the long run. The IMF’s research indicates that the reallocation of foreign direct investment away from geographically close countries towards those that are geopolitically close, such as the United States and Europe, has the potential to cause significant damage to emerging market economies that rely on inflows of investment from more distant countries. The IMF has called on policymakers to foster greater global integration. The international financial body has also published research outlining the impact of geopolitical fragmentation on the banking sector, highlighting the cost to Russia and its allies of the 2022 invasion of Ukraine. “In general, a fragmented world is likely to be a poorer one,” IMF officials wrote in a blog post published Wednesday.
The World Trade Organization, on the other hand, said 2023 global trade growth would be slightly better than earlier estimates, but would remain “subpar”, weighed down by the Ukraine war and stubbornly high inflation.
Similarly, there aren’t glad tidings for India in 2023. The World Bank on Tuesday cut India’s growth forecast for 2023-24 to 6.3 percent from its December estimate of 6.6 percent amid global headwinds and with rising borrowing costs and slower income growth leading to a moderation in consumption. However, on a positive note, the bank’s country director Auguste Tano Kouame said the Indian economy continues to show strong resilience to external shocks. And as has been the case in recent years, the country’s fundamentals are strong enough to weather the unhelpful global economic situation. The Asian Development Bank has also predicted India’s economy grow at a slower-than-expected 6.4 percent this year.
Overall, the Ukraine war, growing US-China tension and the consequent revival of the cold war like geopolitical confrontation is not a good news for the world economy. Even though India has been holding out and has emerged as one of the fastest growing economy, the growth hasn’t adequately percolated to the ground. Unemployment and inflation remain areas of concern. Now the Reserve Bank of India is due to go for another rate hike to tame inflation.
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