Decoupling and fragmentation will be costly for the world, said Ngozi Okonjo-Iweala, director-general of the World Trade Organization on Tuesday.
"If we decouple into two trading blocks, it will cost the world a 5 percent loss in global GDP in the longer term. The IMF estimates (long-term cost of trade fragmentation could be as high) 7 percent (of global GDP)," she told a forum on Tuesday during the 14th Annual Meeting of the New Champions, also known as the Summer Davos Forum. The event, themed "Entrepreneurship: The Driving Force of the Global Economy", runs from Tuesday through Thursday in Tianjin.
"That's like saying that we lose the equivalent of the whole economy of Japan, which will be catastrophic for the world," she added. "So, decoupling and fragmentation is something that the world simply cannot afford to have."
When it comes to the headwinds, Okonjo-Iweala said World Bank research shows that the long-term growth potential of both developed and developing countries, and emerging market economies are declining due to some structural factors like demographics, calling for more efforts to harness areas where there is productivity growth and where young labor can help the global economy.
Despite the challenges ahead, she still sees some opportunities in world trade including the rapidly growing digitally delivered services and the growth potential in green trade.