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  • Sajda Jaward

Monday Market Musings>>>IMF has revealed the fragmentation of the global economy

Picture Credit: Moneycontrol Website

The effects of war, pestilence, and raging inflation have severely affected the global economy. The aggressive rises in US interest rates, which the Indians believed were transferring America's challenges to other countries, infuriated them.

The G20 was created as a group to urge the largest industrialized and developing market nations to work together to find solutions to shared challenges, but it was unable to even agree on a generic communique to sum up its pointless discussions.

It demonstrates how the world economy is becoming more fragmented as a result of how different nations have reacted to recent shocks by protecting their own interests.

The more conventional choice was made by Joe Biden to impose restrictions on the shipment of US computer chips to China, which is a symbol of the tense relations between the two largest economies in the world.

Because of the global economy's fragmentation, there may be changes to supply chains that have a longer-term effect on cost structures. The repeated shocks and growth slowdowns, raise a more significant query.

Richard Kozul-Wright, director of globalization and development initiatives, asserts: "There is a lot of focus on the failures of the previous year but not enough on the fracture that has been occurring since the global financial crisis."

Even though all the elements should have been present for an investment boom, there has been significant underinvestment, which has resulted in supply chain bottlenecks.

Picture Credit: NHK Website

According to Kozul-Wright, inequality is another major cause of the world's fragmentation because the advantages of global commerce are skewed in favor of corporate profits rather than worker pay.

According to Capital Economics' group chief economist Neil Shearing, the international economy is splitting into two blocs that are aligned with China and the United States. Geopolitical factors will influence economic policy more than they have in the past few years.

China poses a much more serious threat to the global economy. China is currently one of the creditors for many of the world's most indebted nations. According to Kozul-Wright, there are parallels to the 1970s in which the US remained the dominating power and China took the place of the Soviet Union as a rival.

Through its Belt and Road plan, Beijing has established an alternative to the World Bank called the Asian Investment and Infrastructure Bank and made investments in more than 150 nations.

Nevertheless, a renewed desire in self-sufficiency and shorter, less vulnerable supply chains has emerged in the west as a result of the pandemic, increasing energy prices, and growing mistrust of China.

November 7th 2022| 10:30 AM

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