China-US decoupling will mean poorer world and no real winners, IMF warns
- International Monetary Fund report shows focusing foreign direct investment among geopolitically aligned countries could reduce global output by around 2 per cent
- Report suggests China and closely associated Southeast Asian economies are likely to suffer the most
China and closely associated Southeast Asian economies are likely to suffer the most as a more divided global investment landscape driven by geopolitical tensions takes shape, the International Monetary Fund (IMF) has warned.
But while the US and its allies may appear to be “relative winners”, they are also likely to face considerable economic costs as they pursue stronger national security or technological leadership, according to an IMF report released on Wednesday.
The report said the strategy of focusing foreign direct investment (FDI) among geopolitically aligned countries could reduce global output by around 2 per cent in the long term.
Although few believe a full break-up between the world’s two largest economies is on the horizon, the geopolitical rift between Beijing and Washington is widening, casting a shadow over the world economic outlook.
This decline has been extremely uneven across regions, with the emergence of relative winners and losers as both source and host of FDI
The IMF report used modelling to predict the long-term effects of FDI fragmentation, amid increasing concerns that business communities and other countries will be caught between the two powers if they proceed with a partial decoupling.
Disrupted supply chains in the wake of the Covid-19 pandemic and the fallout from Russia’s invasion of Ukraine have added to the strains on the existing architecture of global economic integration.