New Delhi

The world economy might contract by the size of the combined French and German economies, if there is a broad-based trade war between the world’s major economies, stated the International Monetary Fund (IMF) according to a detailed report by the BBC.

Advertisment

The BBC report detailed further that, it comes as concerns are heightened ahead of the possible re-election of Donald Trump. Trump says he plans to introduce a universal tax or tariff of up to 20 per cent on all imports into the US, while the European Union is already planning retaliation if Washington goes ahead with the new levy.

Brief details about Gita Gopinath

Gita Gopinath is the First Deputy Managing Director of the International Monetary Fund (IMF) as of January 21, 2022. In that role, she oversees the work of staff, represents the Fund at multilateral forums, and maintains high-level contacts with member governments and Board members, the media, and other institutions. She also leads the Fund’s work on surveillance and related policies and oversees research and flagship publications. Gopinath previously served as the Chief Economist of the Fund from 2019-22.

Advertisment

Trump again raised tariff talk

Further, last week, Trump said “tariff is the most beautiful word in the dictionary”, and global markets and finance ministers are now beginning to take seriously the prospect of him enacting the ideas, the BBC report elaborated further.

IMF Deputy Managing Director Gita Gopinath said the Fund could not yet assess the specifics of Trump's trade plans, but thinks that “if you have some very serious decoupling and broad scale use of tariffs, you could end up with a loss to world GDP of close to 7 per cent".

Advertisment

"These are very large numbers, 7 per cent is basically losing the French and German economies. That's the size of the loss that would be," she continued. Ms Gopinath also said tariffs worth hundreds of billions of dollars “is very different from the world we’ve lived in over the past two of three decades”.

The IMF’s deputy chief further stated that another of the Fund’s main messages at its Annual Meetings was to warn on ballooning levels of global government debt.

She said the current period of steady economic growth was a “moment to rebuild your fiscal buffers” as “this will not be the last crisis. There will be additional shocks. You will need the fiscal space to respond. And now is the time to do it”..

Important to look at the bright side

Ms Gopinath said it was also necessary to “look at the bright side” with a resilient world economy after “some very tough knocks”. She suggested the world economy had seen a soft landing from the multiple crises. “Past experiences with bringing down inflation have not been with a soft landing. It was a big, big increases in unemployment. So that was a big hit, and it has turned out to be much better than many feared”, she said.

Ms Gopinath added that it was a “good win” for central banks everywhere that inflation has come down without high unemployment. But that now was the time to rebuild resilience in a challenging economic outlook. Hence, focus of investors and market participants will shift towards the issues highlighted by the Deputy Managing Director of IMF, Gita Gopinath and it will help them in taking better investment decisions.