IMF fears supply chain fragmentation

Energy crisis the latest shock, but ramifications are significant warns IMF

The International Monetary Fund has published a report warning that global supply chains face “fragmentation risk”, which will lead to higher costs. 

Geopolitical events continue to cause the “reconfiguring of supply chains”, which threatens long-term resilience and stability it says.

One of the largest of these is the energy crisis, which the IMF hopes will peak in 2023. However, it warned that: “The energy crisis, especially in Europe, is not a transitory shock. The geopolitical realignment of energy supplies in the wake of the war [in Ukraine] is both broad and permanent. Winter 2022 will be challenging, but winter 2023 will likely be worse.”

As the energy crisis worsens, the IMF predicts that global growth will shrink, with US growth slowing to 1% in 2023 and the most pronounced slowdown occurring in Europe where the energy crisis will cut growth to 0.5%.

Furthermore, they believe that high inflationary pressures along the supply chain have yet to reach their peak.

Global inflation, is expected to peak at 9.5% in 2023 before dropping to 4.1% by 2024, and will not be limited to food and energy.

The IMF has advised governments to place supply chain diversification at the heart of fiscal policy.

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