IMF warns geopolitical fragmentation could raise financial stability risks

WASHINGTON - Rising geopolitical tensions and the resulting fragmentation of the global economy could increase financial stability risks, reducing cross-border investments, asset prices, payment systems and banks' ability to lend, the International Monetary Fund (IMF) said on Wednesday.

- 

The IMF has long warned of increased costs, economic friction and gross domestic product output losses associated with the global economy fragmenting into geopolitical blocs, with US-led democracies on one side and China and other autocratic states on another. This can lead to competing technology systems and reduced trade.

But a new IMF working paper highlighted the potential for rising tensions to drive outflows of cross-border capital, including direct investment, from countries, with particularly high risks for developing and emerging market economies.

Such stability risks are driven through financial channels, IMF researchers said in the paper, prepared for next week's IMF and World Bank spring meetings as part of the Global Financial Stability Report.