Global Economy Could Lose 5% of GDP If The World Splits Into Two Trading Blocks, Warns WTO

Ngozi Okonjo Iweala
Ngozi Okonjo-Iweala

The global economy is showing signs of fragmentation, which could be “very costly” for all, World Trade Organization (WTO) Director-General Ngozi Okonjo-Iweala has warned.

In an interview with Nikkei on Sunday, the WTO chief voiced concerns about the escalation of the Israel-Hamas conflict and its potential impact on global growth if it spills over to the wider Middle East.

“That is one of the regions where a lot of the world’s oil and gas comes out of,” Okonjo-Iweala pointed out. “So inevitably this will have an impact.” 

According to the WTO, the outlook for 2024 is still relatively optimistic, with growth projected at about 3.3%, “but the risks are heavily to the downside.” 

The WTO estimated that if the world splits into two trading blocs, global GDP will drop 5% in the longer term. This would be a “huge loss,” Okonjo-Iweala cautioned, equating it to losing the entire economy of Japan.

Nevertheless, the WTO does not see “big signs of a broader de-globalization,” according to its chief, who said the volume of trade in goods and services is “still quite substantial,” at about $31 trillion.

Earlier this month, the WTO slashed its 2023 forecast for global trade growth to 0.8% from the previously estimated 1.7%, citing a deepening manufacturing slowdown.

IMF Issues New Negative Global Inflation Forecast

Media reports said:

The International Monetary Fund (IMF) has issued an upward revision of its forecasts for global inflation to 6.9% this year and 5.8% in 2024, marking an increase of 0.1% and 0.6%, respectively, versus the projections made by the Washington-based institution three months ago.

On the other hand, global inflation is expected to steadily decrease from 8.7% in 2022 to 6.9% this year.

In its latest World Economic Outlook (WEO), the IMF left its forecast for global real GDP growth in 2023 unchanged at 3.0% but slashed the projection for 2024 by 0.1% to 2.9% compared to the prognosis made in July.

“The global economy is limping along, not sprinting,” the fund said in its report, citing a slower-than-expected recovery from the impact of the coronavirus pandemic and Ukraine-related crisis.

As for the latest escalation of the Israeli-Palestinian conflict, IMF chief economist Pierre-Olivier Gourinchas noted that it is “too early” to assess the impact on the global economy, adding that the institution was “monitoring the situation closely.”
“We have seen that in previous crises and conflicts, and of course, this reflects the potential risk of disruption either in production or transport of oil in the region,” Gourinchas warned.

The IMF stressed that the slowdown is much more pronounced in advanced economies than in emerging markets and developing countries.

IMF analysts expect the slowdown in advanced economies to move from 2.6% scored last year to 1.5% in 2023 and 1.4% in 2024 due to stronger-than-expected momentum of the US but weaker-than-expected growth in the Eurozone.

For emerging markets and developing economies, the projected modest decline in growth rate is from 4.1% recorded in 2022 to 4% in 2023 and 2024, with a downward revision of 0.1% in 2024.


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