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Peta Gopenhatty, first Deputy Managing Director of the International Monetary Fund. At a time where it feels like people are girding for change, and you talk about some of this in your recent outlook, you say that there is a great deal of uncertainty because of geopolitical conflicts, protectionism and disruptions and trade. Can you describe what exactly you're talking about with protections?
Is this tariffs? Is it subsidies?
So firstly, I think we should recognize that the global economy has turned out to be quite resilient after some very hard knocks, and which is why we have growth at around three point two percent of this year and next. But looking ahead, there is a great deal of uncertainty. There are questions around what kind of policies will we have depending upon the results of important elections. Conflicts in the Middle East that could escalate and you could see
much wider regional tension, and oil prices could go. Well, what's going to happen to growth in China? That's another factor. So there are many risks as much of lots of uncertainty. Trade policy is also being discussed at these meetings quite heavily in questions around that all of this are risks that we see looking ahead.
How much is the US election dominating every discussion that you have with everyone?
You know, it is very important.
What happens in the US matters for the US and matters for the whole world, So as you can imagine, it is an important part of the conversation.
Is it making people feel paralyzed?
And I'm talking about policymakers that I'm talking about you know, investors.
Is it making people feel like.
They can't really make any moves until there are some outcomes for some of the big events and the elections that are coming down the pike.
When you see the.
Data, you don't really get that impression that people are paralyzed. If you look at the US economy and how it's doing. You know, consumption is doing very well, libal markets are doing well in those they've slowed some, and the financial markets are very strong. Financial conditions are easy, So you aren't seeing any you know, negative knocks coming from that uncertainty right now. But yes, I think as we get closer to it, that goes up and we will see what comes after them.
Yeah, And I was speaking with the Buddhist Bank president this morning, and he is talking about how it's hard for him to really gauge some of the inflation risks because for them, inflation would be a lot higher.
Do you feel like that's the case.
That interest rates are going to have to go up more significantly as more tariffs go into place.
What we do know is that tariffs are inflationary. They do put pressure on prices. That's usually what we see in the data looking at past episodes of tariffs that have been put in place. Right In addition, there is a very important question of what the stance of fiscal policy is going to be around the world and how
expansion is going to be. The US economy is very strong right now at the same time we are seeing inflation coming down, and our expectation is that they will continue to do so and the Fed will continue to cut rates. Now, if there is a much more expansion in a physical stunts, you know, that could move the argument in a different direction.
Are you surprised the interest rates and I don't want to say interest rates that tenure treasure yells, that that the benchmark treasure yields on the longer term or even just globally, aren't reflecting more the one hundred trillion dollars of global debt that you've reflected in your latest IMF projection.
The rate is going for the US debt is going to also be a function of the strength of the US economy, the strength of its institutions, and there's tremendous.
Faith in that. Again, the US economy is one of.
The strongest among the major economies if you look at those and when you compare the US to the other G twenty economies, it's the only economy that's GDP's higher now than we had projected before the pandemic, the only major economy. So it's a very strong economy, a lot of confidence in it, and that's showing up in the numbers too.
What I find amazing is that we talk about how well things are going, and I got a sense for you. You said, before you start talking about the risks, the economy is doing really well. Understand this is there almost this sense of why are people not feeling that? Why is that not reflected in the sentiment on the ground in so many surveys, Given the fact that the data it looks pretty much like goldilocks, like soft landing, all these things that people hoped for.
Well, the fact is that we have inflation coming down, but the price level now is much higher than it was a couple of years ago. And for people in their consumption baskets, they look at what the price level is and they say, well, prices are much higher, even though their incomes have gone up too, which is why you see consumption holding up very well. But there's a lot of salience of what the price level is when you go to the grocery store and your basket of
goods and how much they cost. I think that's having an effect on sentiment. But I think we do have to recognize that. You know, in the past, when there's when central banks have tried to bring down inflation from the kind of high levels we've seen, it's been much more disruptive to economies. This is quite unique that we're having inflation coming down and we are likely to see a soft lending.
You also talk.
About trade policy, and I want to go there because right now, at the same time that we're holding that we're at these meetings in Washington, DC, there is a conference going on in Russia with the bricks right the different countries Brazil, Russia, India, as well as China, Jijimping and Vladimir Putin are there. A lot of the delegates from China are not here.
They are there? Is that concerning to you?
So let me give you a fact that I think will help says a bunch of concerns. Just very recently, are members one hundred and ninety of foreign members they had to all agree to this on a particular reform that would help the IMF support to low income countries. Or one hundred and ninety member countries of the IMF supported this. That just tells you that there's a lot of support from our members for the IMF and they
see a great deal of value in this institution. So, you know, we'd recognize that several of our members are parts of other groupings, but from our perspective, we see them very engaged with.
Our own work.
How difficult is it to come up with statements that reflect a unified vision given that there's sort of a fractured world.
I mean, we've talked about this. You did a lot of research on this that I think is.
Really interesting about how there are parties that are kind of the third parties that are helping to conduit it'd be the conduit for trade between different countries that don't want to do business together. I mean, how is that making it difficult to sort of have the same reality you've had traditionally.
I mean, there's no doubt the geopolitical tensions are higher than we have seen in the past decades, and there are more countries questioning the value of all the close economic integration that we have had, questions of how to de risk your supply chainsational steak years.
He concerns all of this.
Is taking center stage, and that obviously has implications for any multi natural institutions. But I have to say that what I am very pleased with is how our members, all of them, are still working very closely at the IMF to push through important reforms for the world.
We talk about the developing world, and I'm wondering how much there is a convergence in your mind between activities in the developing world and in the developed world, especially with the deficit and some of the increase there, and that you're seeing the opposite in a number of developing developing countries where they're actually reducing debts.
And trying to be more disciplined. Okay, So one of the.
Points that we're making through these meetings is pointing to everybody that we have a problem because death is very high and our projected growth, especially into the medium term, is not great. It's a low growth numbers three point one percent as as opposed to what it was for a few decades, which is around three point eight percent. That is a problem, which means all countries, including advanced economies, need to act on that. What is true is that
for developing countries they don't really have a choice. You know, there's a lot of pressure coming from the markets. They have high debt, servicing costs. We are concerned about liquidity issues in several countries, and that you know is coming after these countries have cumulated large amounts of death through the pandemic and the big increase in energy in food prices. So that's these differences, but that's always been the case.
You know, countries like the US can run much bigger deficits than developing countries can.
Do you think that the US could face a less trust moment.
US debt is very sustainable, it is a strong economy. But all of that said, our advice to the US is that it should have smaller deficits, given also that the economy is above potential and doing really well at this point of time, so bringing down the debt and especially to build up for another shop the crisis which will come. We know this is not the last time we have a crisis.
Do you think that I just want to end here this question about regime change, and that some people are saying that we're entering a new paradigm where there is a greater acceptance of protectionism, of trade tensions, of this question about who's friends with who and who's going to scratch who's back, but not necessarily the same sort of free trade era. Do you think that this is the beginning, the middle, or the end of that evolution.
What we certainly have changed in the sense that there was a time when countries were hyper focused on efficiency, and when they were deciding who to trade with the only question was which was the cheapest source to buy from. Right now they're stepping back and saying, well, we need to make sure our supply chains are secure, that we are not exposing ourselves to big risks, that they are
not big national security concerns. That changed is already happening and you see that in the data, but it's still of a small ma I get you. The question is how much further down the post do we go?
And that I think is uncertain.
Get to Gopinath. Thank you so much for being with us. Really appreciate your insights. That's get to goopin App the first Deputy Managing Director at the International Monetary Fund,