IMF warns that the world economy is facing more risks

The IMF warns that the world economy is facing more risks. The report says that open-market economies will be hurt the most by rising trade barriers.

The International Monetary Fund (IMF) has warned that the rising cost of living, high levels of debt, and geopolitical tensions around the world could cost the world economy up to 7% of its GDP.

According to a report it released on Sunday, the increasing trade restrictions could lead to what it calls "geoeconomic fragmentation."

The IMF said that the long-term cost of trade fragmentation ranges from 0.2% of global output to almost 7%, which is about the same as Germany and Japan's combined annual output. "Technological decoupling could cause some countries to lose up to 12% of their GDP," the report said.

But the analysis shows that the full effect would likely be even bigger. The report pointed out that, in addition to trade restrictions and barriers to the spread of technology, fragmentation could be felt through restrictions on cross-border migration, reduced capital flows, and a sharp drop in international cooperation "that would leave us unable to deal with the challenges of a more shock-prone world."

The IMF says that fragmentation will have different effects on different groups. For example, consumers in advanced economies with lower incomes would lose access to cheaper imported goods. "Small economies with open markets would be hit hard." The report said that most of Asia would suffer because it relies so much on open trade.

It also said that emerging and developing economies would no longer benefit from "technology spillovers," which have helped boost productivity growth and living standards. It said that instead of catching up to the income levels of advanced economies, the developing world would fall further behind.