The world economy risks sliding into a second Cold War, wiping out the benefits of three decades of peace and growth, a senior International Monetary Fund (IMF) official has warned.
Gita Gopinath, deputy commander of the IMF, said there was a risk that the gains from open trade would be “erased” as countries split into competing power blocs.
Today, the conflict is not between the United States and the Soviet Union, but between the United States and China.
And the world is at a “tipping point,” Gopinath said.
He told a conference in Colombia that up to 7% of global GDP, or trillions of dollars, could be lost if the global economy split into blocs with the United States and Europe on the one hand and China and Russia on the other. . .
“While there is no sign of a widespread retreat from globalization, geoeconomic fragmentation is becoming more real and fault lines are emerging,” she said. “If divisions deepen further, we could end up in a new Cold War.”
The comments from one of the world's most powerful power brokers underscore the level of alarm over rising tensions between the United States and China.
These tensions have intensified following Russia's invasion of Ukraine, which has already caused a slowdown in global trade.
Governments in the United States and Europe are spending hundreds of billions of dollars to protect their industries from foreign competition.
After years of tensions and rising tariff barriers, China is no longer the United States' largest trading partner.
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The share of U.S. imports fell from 22% in 2018 to 13% in the first half of 2022.
Although it was not mentioned in Gopinath's speech, his possible return to the White House in 2025 is likely to reignite concerns about worsening global relations under Donald Trump. , the process was further intensified.
Gopinath said that over the past five years, “threats to the free flow of capital and goods have increased as geopolitical risks have increased.”
He said around 3,000 “trade restrictive” measures were imposed last year, almost three times as many as in 2019.
“If we enter a second Cold War knowing the costs, we may not see mutually assured economic destruction, but the gains from free trade may disappear,'' she said. Ta.
Gopinath acknowledged that arguments against globalization are helping to strengthen calls for inward-looking policies.
“Of course, economic integration has not benefited everyone,” she says. “But it has helped billions of people become wealthier, healthier and better educated. Since the end of the Cold War, about 1.5 billion people have been lifted out of extreme poverty. .”
Gopinath said the tensions, war and pandemic between the US and China have “changed the strategy of global economic relations”.
interest rate stalemate
Investors are bracing for another showdown with central banks in a crucial week for interest rate expectations.
The FTSE 100 index fell 0.1% to 7,544.89 after rising to a seven-week high last weekend.
The announcement comes ahead of this week's interest rate decisions by the Bank of England, the European Central Bank and the US Federal Reserve.
Neither is expected to change interest rates, but they are being forced to respond to market expectations that they will start lowering rates in the coming months.
Signals that a rate cut is coming soon could provide further encouragement to stock and bond markets.
Investors will also be paying close attention to important economic data that shapes central bank decisions.
First up will be the UK employment and pay figures released today, with wage growth expected to slow to a still-high 7.4%.
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