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FX.co ★ IMF warns of geopolitical tectonic shifts

IMF warns of geopolitical tectonic shifts

IMF warns of geopolitical tectonic shifts

The International Monetary Fund warns that geopolitical fragmentation is the biggest threat to the global economy in the face of the Russia-Ukraine conflict. Many analysts fear the global economy could fall apart into distinct geopolitical blocs. Such fragmentation is a major roadblock in tackling global problems such as the mitigation of climate change. In addition to traditional economic and financial risks, IMF economists point to such factors as monetary policy tightening, GDP slowdown in China, and soaring energy prices. At the same time, experts warn about the world economy collapsing into geopolitical blocs amid the military conflict in Ukraine. “A serious risk in the medium term is that the military operations in Ukraine will contribute to the fragmentation of the global economy on geopolitical blocks with clearly distinguishable technological standards, cross-border payment systems, and reserve currencies,” the fund reports. Currently, the IMF sees no vital signs of trade deglobalization or “reshoring,” which means moving off-shore production back home from less developed countries. The world economy may experience acute pains if geopolitical fragmentation intensifies. World governments may go their separate ways and such disunity can lead to the fact that “the current food crisis will become the norm,” the IMF warned. However, some experts believe that the risk of the world economy being divided into geopolitical blocs is exaggerated. On the contrary, amid geopolitical turmoil, Russia is ready to cooperate with most Asian countries, including Syria, China, North Korea, Venezuela, and Iran, as well as with Cuba and Belarus. Notably, China is more interested in trade with Russia than any other country, as it has more to gain from this cooperation. At the same time, the global supply crisis is weighing on the world economy. For example, the Global Supply Chain Pressure Index has been at record levels since December 2021, which indicates considerable disruptions in global supply chains. Amid the ongoing supply crisis and the collapse of supply chains, as well as due to the reshoring, the risk of deglobalization of the world economy is increasing. This may lead to a multipolarity, experts warn. According to analysts, the global multipolar socio-economic system will be less stable than the bipolar one. Notably, the bipolar system formed during the Cold War between the USSR and the United States. In such a case, a unipolar system dominated by the United States is preferable, economists believe.

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