Group of Seven (G7) finance leaders
pledged to give low- and middle-income countries a bigger
role in diversifying supply chains to make them more resilient
and sustainable.
Their communique did not mention China by name, but the supply chain language fit in with "friend-shoring" efforts championed by U.S. Treasury Secretary Janet Yellen and other Western leaders to trade more with allies and become less reliant on the Asian manufacturing powerhouse for battery minerals, semiconductors and other strategic goods.
The IMF warned earlier this month that rising geopolitical tensions and the resulting fragmentation of the global economy could increase financial stability risks, potentially reducing global economic output by between 0.2% and 7%. Georgieva said policymakers might have to accept that development of new, more separated supply chains would involve some cost, but could keep those costs low by continuing to work together through institutions like the IMF.
"Security of supplies and the reliable functioning of global supply chains is taking a new, higher priority seat in economic discussions," she said, citing the impact of both the COVID pandemic and the war in Ukraine. But she warned against going overboard and harming global trade flows.
"If we fail to be more rational, then people everywhere would be worse off. The middle class in each country would pay a price," Georgieva said. "So a bit more cool-headedness would take us a long way."
CHINA REBOUND
The IMF has long warned of increased costs, economic
friction and GDP output losses associated with the global
economy fragmenting into geopolitical blocs, with U.S.-led
democracies on one side and China and other autocratic states on
another. This can lead to competing technology systems and
reduced trade.
A new IMF working paper showed such rising tensions could
also drive outflows of cross-border capital, including direct
investment, from countries, with particularly high risks for
developing and emerging market economies.
The IMF is forecasting a strong rebound in China in 2023
given its post-COVID opening, and it will account for about
one-third of global growth this year, Georgieva said.
World Bank President David Malpass said the strong growth
forecasts for China also reflected the Asian nation's "explicit
efforts" to rebuild supply chains and have a faster opening
process.
This was also part of a broader readjustment in supply
chains after vulnerabilities exposed during the COVID years as a
result of too-strong dependence on China, he said.
(Reporting by David Lawder; Editing by Paul Simao)
