One of the main reasons is tensions between the US and China, which could harm the world economy. Foreign direct investments and capital are increasingly being directed to the united blocks of countries, according to IMF experts. In one modeled scenario, GDP will fall by 1% five years from now and by 2% in the long term.
Relations between the world’s two largest economies have soured in recent years as they increasingly see each other as a significant strategic and economic threat. This is indicated by the fact that foreign direct investment from the second quarter of 2020 to the fourth quarter of last year decreased by almost 20% from the pre-pandemic level.
Moreover, a new US strategic policy indicates that a change in cross-border capital flows will soon occur. The IMF warns that rising tensions could trigger a cross-border outflow of funds, threatening financial stability.