China's President Xi Jinping and Russia's President Vladimir Putin shake hands during the Shanghai Cooperation Organization summit in Qingdao, Shandong Province, China, on June 10.
The world is about to divide into two economic blocs and end decades of globalization, reports from the International Monetary Fund warn, especially after the Russian-Ukrainian war and its economic consequences.
There are fears that China and Russia, in light of the sanctions that affected the latter due to the Ukrainian crisis, will create a financial system to compete with the West, according to an analysis published by the British newspaper, The Telegraph.
The West kicked Russian banks out of the Swift system, and China's UnionPay stepped in to help Moscow after Visa and Mastercard suspended operations in the country.
"The war has also increased the risk of a more permanent disintegration of the global economy and into geopolitical blocs with distinct technical parameters, cross-border payment systems, and reserve currencies," said Pierre-Olivier Gorenchas, chief economist at the IMF.
He added that this "split" would have substantial economic consequences and pose a significant challenge to "the rules-based framework that has governed international and economic relations for the past 75 years."
While the IMF revealed that global growth will slow sharply from 6.1 per cent in 2021 to 3.6 per cent this year, 0.8 percentage points weaker than expected last January, after the "expectations worsened significantly."
The British economy is expected to expand 3.7% this year, one percentage point lower than previous forecasts.
The IMF said that while this would be much stronger than Germany, France and Italy, growth in the UK would suddenly slow to 1.2 per cent in 2023 as inflation in living standards fell, and high borrowing costs hit business investment.
In contrast, Germany's economy is expected to grow at a much slower rate of 2.1 per cent in 2022, nearly half of the expected expansion in January, while Italy's GDP will rise by 2.3 per cent, down 1.5 percentage points.
The two countries' economies are among the most dependent on Russian gas supplies, especially as higher prices pressure households and companies.
The IMF explained that the European Union countries are the second-largest obstacle in its forecasts to global growth after the Russian economy, which is expected to contract by 8.5 per cent.
"The war is adding to the series of supply shocks that have hit the global economy in recent years," Gorenchas said.
He also likened this to seismic waves whose effects will spread widely through commodity markets, trade and financial links, as Russia is a major supplier of oil, gas and minerals and its participation with Ukraine in the supply of wheat and corn.
It is noteworthy that the Russian-Ukrainian war has not only affected the situation in these two countries but affected the region and the world at large. It also indicates the importance of a global safety net and regional arrangements to protect economies from shocks.
Since Russia and Ukraine are major commodity producers, supply chain disruptions have caused global prices to rise sharply, particularly oil and natural gas prices.
Food costs have also jumped in light of the historical level of wheat price, with Ukraine and Russia contributing 30% of world wheat exports.