The International Monetary Fund warns that the geopolitical fragmentation caused by the standoff between the US and China could harm international investment and economic growth.

According to an excerpt from a World Economic Outlook Foundation report released on Wednesday, the split of the world into two segments centered on the US and China could force companies to move production to friendlier countries to avoid supply chain problems amid geopolitical tensions. . This course of events will lead to a decrease in world production by 1% in the next 5 years and by 2% in the long term.

“A fragmented world is likely to be poorer. While some players may benefit relative or even absolute from this, such benefits come with significant uncertainties,” the report says.

The fund’s experts say the first effects of the crisis on relations between Washington and Beijing began to appear as early as 2020, when foreign direct investment fell 20% from pre-pandemic levels between the second and fourth quarters.

Tensions between the US and China could also hit the banking system hard, disrupt supply chains and fuel inflation. This could force banks to take less risk and cut back on lending, further slowing economic growth.

The IMF’s risk analysis has become “one of the strongest” warnings of the global economic damage from the coronavirus pandemic, according to Bloomberg. Since October 2021, the IMF has cut global growth forecasts three times. According to the latest data, the fund predicts that global GDP growth will slow to 2.7% this year.

Source: Bloomberg.