Asia will lose the most if economic fragmentation worsens
The International Monetary Fund warned that the Asia-Pacific has more to lose than any other region if the global trading system splits in the wake of geopolitical tensions.
Asia and Pacific countries could lose more than 3% of gross domestic product if trade is cut off in sectors affected by recent US chip sanctions on China and if barriers Non-tariff measures in other regions were raised to “Cold War” levels. The IMF said in research published on Friday.
That’s double the number of annual losses predicted globally.
The IMF added that industries in Asian countries that are forced to contract because of reduced trade can experience job losses of up to 7% on average.
“As we talk about progress from increased trade uncertainty and more restrictive measures, [it] Krishna Srinivasan, Director of the Asia and Pacific Department at the IMF, said at a press conference in Singapore on Friday that would eventually escalate into fragmentation, where the world is divided.
The International Monetary Fund warns Asia has more to lose than any other region if the global trading system splits.
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“Asia risks losing a lot because it’s a key player in global supply chains, and in a fragmented world, it risks losing more than anyone else.”
US-China trade tensions
Signs of global fragmentation emerged in the 2018 US-China trade war, but more worrisome signs, such as the Russia-Ukraine war, have since emerged. The IMF said the sanctions against Russia added even more uncertainty around trade relations.
The IMF said policy uncertainty around trade, not just restrictions, could hamper economic activity as companies halt hiring and investment and new firms delay entry. school, the IMF said.
For example, the IMF found that US-China trade tensions 2018 reduce investment by about 3.5% after two years.
The impact of trade fragmentation is greater for emerging markets in Asia and for businesses with high debt.
The IMF said that while its study focused on the impact of fragmentation on trade, there could be other deeper downsides, such as the “unwinding of financial ties”.
“Financial dispersion can lead to short-term costs due to rapid financial instability and long-term costs of lower diversification and slower productivity growth due to direct investment,” the IMF said. decrease in foreign exposure”.
The international body is calling on countries to remove damaging trade restrictions and reduce uncertainty through clearer communication of policy goals.
Srinivasan said: “There can be more emphasis on digitization, investment in education… but most importantly international cooperation, because we want to avoid the risk of fragmentation… it is important that we all have to act, act together”.
Capital flow
There have been concerns about capital outflows from Asia as interest rates in the region lag behind those in the United States. But so far, they’re “manageable,” says Srinivasan.
Srinivasan added that the situation in Asia is mixed.
“For example, we see a lot of capital inflows to India, we see capital flows to Taiwan, China and moderate flows from Indonesia, moderate flows to Malaysia, but we see some net capital inflows,” he said. Thailand. And recently, we’ve seen the flow back to India. So the picture is a bit mixed,” he said.