“What I’m hoping for is to see a change in Chinese and international law,” Kristalina Georgieva told Bloomberg Television’s Stephen Engle in an interview in Bangkok on Saturday. “The world will lose 1.5% of its gross domestic product because of the fragmentation that will divide us into two trading groups. That’s $1.4 trillion.”
For Asia, the possible loss could be twice as bad, or more than 3% of GDP, because the region is more integrated with the global value chain, Georgieva said on the sidelines of the economic leaders of the Asia-Pacific Economic Cooperation that gathered this week.
Although this could seriously damage the global economy, which is harming global growth and the war in Ukraine, Georgieva said. “One thing that is destroying the world’s economy the most is war,” he said. “The sooner the war is over, the better.”
The IMF has also warned that rising inflation is weighing heavily on developing countries, urging central banks to continue to fight inflation and to bring relief, especially to the food sector. The dollar’s double appreciation so far this year continues to cause headlines in emerging markets as investors flock to safe havens amid signs that the global economy is on course to collapse.
Mr. Georgieva said that Asian countries should work together to overcome divisions in order to continue to grow, especially in light of the increasing economic problems caused by Covid-19, the war in Ukraine and the rising cost of living.
“If we increase the distribution of wealth around the world, then it adds fuel to the fire,” he said. “Nobody can benefit from it.”
However, he said Asian countries are ready to face economic challenges due to large reserves and cooperation in the region.
On the growing risk of debt in developing countries, Georgieva said the IMF “is not worried but alert.” About 25% of emerging markets trade in crisis areas, while 60% of low-income countries are in debt or close to debt. He urged the countries that are suffering due to the high cost of debt that comes from the dollar and the current state of the world economy to take immediate action and ask for help as soon as possible.
Bangladesh was the latest economy to reach a working-class agreement with the IMF amid dwindling foreign reserves, securing a $4.5 billion loan earlier this month that must be monitored by the IMF and approved by the board in the coming weeks.
The IMF’s research department earlier this week expressed its views more strongly than last month, saying in a post that the challenges are “significant.” The fund last month cut its forecast for global growth next year to 2.7%, down from the 3.8% it forecast in January. It sees a 25% chance that growth will be less than 2%.
The IMF’s calculations show that almost a third of the world’s economy will have two consecutive deficits this year and next, and that the losses through 2026 will be $ 4 trillion.
Georgieva also pointed to the challenges facing the European Union as a result of the war in Ukraine, which could force central banks to change their efforts to combat inflation in the near future.
“In Europe, the situation is very difficult because the war in Ukraine is important,” he said. “Half of the EU could collapse next year.”