"If the global economy were to fragment into two blocs based on UN voting on the 2022 Ukraine Resolution and trade between the two blocs were eliminated, global losses are estimated to be about 2.5 percent of GDP. But depending on economies’ ability to adjust, the losses could reach as high as 7 percent of GDP," IMF First Deputy Managing Director Gita Gopinath said.
Gopinath pointed out that the losses may be extremely pronounced in lower-income countries and emerging markets.
"Foreign direct investment (FDI) fragmentation in a world divided into two blocs centered around the United States and China - with some countries remaining non-aligned - could result in long-term global losses of around 2% of GDP," she said.
Gopinath noted that there are "clear signs" global FDI is segmenting along geopolitical lines.
"Announced FDI projects between blocs declined more than those within blocs after the onset of the war in Ukraine, while FDI to non-aligned countries sharply increased," Gopinath added.