Lagarde Says Fragmenting World Economy Is Risk for Central Banks

(Bloomberg) — Christine Lagarde warned that changes in the world economy induced by geopolitics pose a challenge to the European Central Bank and its peers.

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“We are witnessing a fragmentation of the global economy into competing blocs, with each bloc trying to pull as much of the rest of the world closer to its respective strategic interests and shared values,” the ECB president said Monday.

“All this could have far-reaching implications across many domains of policymaking,” she said in a speech at the Council on Foreign Relations in New York, describing potential instability around supply chains, and more “multipolarity.”

Lagarde’s remarks add to a discussion last week among finance chiefs over the rising role of geopolitical struggles like Russia’s invasion of Ukraine in the global economy.

The key takeaway among rich, democratic nations is that there’s the need for more “resilience” in supply chains — to ensure they’re better insulated from risks ranging from war and pandemics to attempts at coercion by authoritarian regimes.

But others, including the International Monetary Fund, are warning against a “fragmentation” of the world into competing blocs that hurts growth.

“Central banks must provide for stability in an age that is anything but stable,” Lagarde said. “The time to think about how to respond to changing geopolitics is not when fragmentation is upon us, but before.”

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