Volatility to Stay, India In a Better Position to Handle it than Some Countries: IMF’s Gita Gopinath
The risk of global recession is lower than individual countries going into recessions, Gita Gopinath, Deputy Managing Director of the International Monetary Fund (IMF), told CNBC-TV18 in an exclusive interview on the sidelines of the World Economic Forum 2022 in Davos.
Projecting a 3.6% growth for the global economy this year, Gopinath expressed concerns over the high levels of inflation in many countries.
“There is a lot to be concerned about the global economy, seeing the commodity prices going up sharply. Inflation is a serious concern in many parts of the world,” said Gopinath.
ON INDIA
According to Gopinath, India, with around $600 billion in reserves, is in a better position to handle volatility that other countries where the condition is far more precarious with debt stress.
“In some cases, countries may need outright debt restructuring,” she said.
While inflation in India is a concern, India’s revenues have come in stronger than expected, she said.
#CNBCTV18Exclusive | #Davos2022 | Risk of a global #recession lower than risk of individual countries going into recession, says @GitaGopinath of the International Monetary Fund.#WEF22 #WEF #DAVOS @ShereenBhan pic.twitter.com/RZeb7FvGEo— CNBC-TV18 (@CNBCTV18News) May 23, 2022
WAR, FOOD CONCERNS
Gopinath said countries are struggling with high input costs for foods.
“Depending on how long the war lasts, food prices could go up much more than we’ve seen. We are seeing shortages of food products and fertilizers across the world. We expect the food inflation to be even higher,” she said.
ON CHINA
The IMF deputy MD said April numbers are a major concern for China’s growth prospects, even as they are still accommodative in developed economies.
“We downgraded growth for China to 4.4%. Growth for China could slow down further than what we have in our forecast.”
CRYPTOCURRENCY
Gopinath expects more volatility in the asset market and cryptocurrency.
(1) Inflation is increasingly broad-based as median inflation rises in many regions (2) Policy rates moving up but real rates deeply negative in many (3) Despite sizeable rate increases in Latin America inflation continues to rise. A cautionary reminder of lags in policy effects. pic.twitter.com/Qn96lGQ1Vf— Gita Gopinath (@GitaGopinath) May 20, 2022
“Crypto markets saw a 50% drop. It tells you crypto assets are as risky as other assets to own,” she said.
WAY FORWARD
Gopinath said there was “no need for interest rates to go up to bring down inflation”, even as she held that central banks will have to tighten rules to fix the situation.
“We have warned for long that this correction in interest rates is expected. We are still in a zone where real interest rates are negative,” she said, adding, “Volatility is what we’ll have to live with this year. Governments need to provide very targeted support. Also, companies that have the ability to increase supply of agricultural products, should do that.”
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