With less international risk sharing (global economic fragmentation), this can lead to greater macroeconomic volatility, more severe crises and greater pressure on national buffers, reads the text published by O Económico magazine, quoting the International Monetary Fund (IMF).

A severe fragmentation of the global economy after decades of increasing economic integration could reduce global economic output by up to 7%, but losses could reach 8-12% in some countries if technology is also decoupled, the International Monetary Fund said in a new staff report.

The IMF even claims that limited fragmentation could cut 0.2% from global GDP, but warned that more work is needed to assess the estimated costs to the international monetary system and the global financial safety net (GFSN).

The note, released on Sunday, January 15, noted that global flows of goods and capital stabilized after the global financial crisis of 2008-2009 and the increase in trade restrictions observed in subsequent years.

"The Covid-19 pandemic and Russia's invasion of Ukraine have further tested international relations and increased scepticism about the benefits of globalization," says the IMF.

For the institution, the deepening of trade ties has resulted in a major reduction in global poverty for years, while benefiting low-income consumers in advanced economies through lower prices.

The break-up of trade links "would have a more adverse impact on low-income countries and less affluent consumers in advanced economies", warns the IMF

In the IMF's view, restrictions on cross-border migration would deprive host economies of valuable skills, while reducing remittances in migrants' home economies.

Reduced capital flows would reduce foreign direct investment, while a decline in international cooperation would pose risks to the provision of vital global public goods.

The IMF says that existing studies suggest that the deeper the fragmentation, the deeper the costs, with technological decoupling significantly amplifying the losses from trade restrictions, noting that emerging market economies and low-income countries are likely to be most at risk as the global economy has shifted towards more "financial regionalization" and a fragmented global payment system.

"With less international risk sharing (global economic fragmentation) can lead to greater macroeconomic volatility, more severe crises and greater pressures on national buffers."

The situation could also weaken the global community's ability to support countries in crisis and complicate the resolution of future sovereign debt crises. (Source: O Económico).