The Global Economy: A Delicate Moment
In 2018, economic activity was accelerating in almost all regions of the world. One year later, much has changed. The escalation of US-China trade tensions, credit tightening in China, and macroeconomic stress in key G20 economies have all contributed to a weakened global expansion. As the US trade war with China deepens, what are the biggest risks at this delicate moment? Gita Gopinath is chief economist of the International Monetary Fund, that develops and launches a world economic outlook each quarter. She shares her perspectives with Gillian Tett, editor at large for the Financial Times.
If you look at the markets, the world is “kind of nuts” right now, says economic journalist Gillian Tett. Bull markets are suggesting a recession but economic indicators, such as consumer spending, show positive signs in countries like America. Tett asked IMF chief economist Gita Gopinath what’s happening.
Gopinath says monetary policy throughout the world is accommodative, especially in big economies. “Everybody is expecting rate cuts,” she says. But, if you look at investment and international trade, “it gives reason for pause.” The first quarter of 2019 was positive for some larger economies like the US, China, and Japan. But, what drove that early-year growth isn’t expected to last. In addition, emerging markets in Latin America and Asia didn’t fare well in early 2019. “So this is a delicate moment with tremendous policy uncertainty,” says Gopinath.
Unlike other large economies, the United States is experiencing a growth streak, but is it just a sugar high? IMF chief economist Gita Gopinath says a record low unemployment rate and other healthy factors are partially thanks to the fiscal stimulus, led by President Trump’s tax cuts in late 2017. But the US economy is also somewhat closed, says Gopinath. Much of its growth depends on internal demand. The growth streak, though, is beginning to slow.
Big IdeaThe first quarter of 2019 was a bit off the charts in terms of 3.1 percent growth rate. Seeing the more recent indicators, we don’t expect that going forward. There’s going to be a slowing down.Gita Gopinath
Gopinath, speaking in June of 2019, said the IMF wasn’t projecting the US would experience a recession in 2019. However, she’s quick to point out that factors such as an escalating trade war with China could change the outlook.
The International Monetary Fund is redefining economics to include variables like climate change and gender. The organization has always considered growth, inflation, and productivity in its work, but it’s hard to ignore macro-critical factors like inequality, says Gita Gopinath.
Consideration of additional factors like gender and the environment has little to do, says Gopinath, with the fact that two women are leading the IMF. Though she says her personal experience of growing up in an emerging market, and yes, being a woman, contribute to her perspective of the work.
Some progressive democrats in America are praising the once-fringe idea of Modern Monetary Theory, or MMT. The Theory, according to Bloomberg, suggests that if a country has its own currency and debt, it can print more money to pay interest. Gita Gopinath points to history to show this approach doesn’t pay off. “If you look at countries that have tried that, it has not been without a cost. It has almost always been inflationary and put countries in a crisis-like situation.”