(Bloomberg) --

International Monetary Fund Managing Director Kristalina Georgieva urged policy makers to avoid the balkanization of the digital economy or risk as much as a 6% hit to global economic output over the next decade. 

The world may soon face a “digital Berlin Wall” whereby the U.S., European Union and China all adopt discordant technology standards, Georgieva said in prepared remarks Monday to the Paris-based Organization for Economic Cooperation and Development. 

Such a splintered digital economy may force poor nations to “choose sides” and result in higher prices, reduced innovation and service, she said, adding that decoupling could see a 3% to 6% drop in global gross domestic product. That scenario may also increase the dominance of today’s tech behemoths and make it more difficult for smaller, innovative companies to compete.

Georgieva also warned that the intensification of anti-competitive trends during the Covid-19 pandemic could reduce the level of GDP in advanced economies by 1% in the medium term.

She said governments can help curb excessive market power via three policy actions:

  • increase merger control and acquisition reviews;
  • discourage labor restrictions that prevent worker mobility; and
  • improve data portability and interoperability rules for the digital economy.

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