IMF: US-China conflict endangers world economic expansion

The International Monetary Fund (IMF) has warned that economic fragmentation could result in long-term global output losses of nearly 2% due to geopolitical tensions. Companies and policymakers are orienting towards moving production home or to “trusted countries”, and trade tensions between investing and recipient countries have reduced the overall bilateral cross-border allocation of portfolio investment and bank claims by around 15%. The rise of “friendshoring” could hurt less-developed markets the most, as it reduces access to investment from advanced economies. IMF economists caution that a fragmented world is likely to be a poorer one, as reconfigured supply chains could strengthen national security and help maintain a technological advantage over geopolitical rivals, but also reduce diversification and make countries more vulnerable to macroeconomic shocks.