The IMF expects global economic growth To remain resilient this year expanding At 3.2% on par with what we saw last year Still that is below historical averages That we've seen over the past Years looking at the medium-term Prospects for growth those are expected To be the lowest in decades joining me Now is Gita gopath first Deputy managing Director of the IMF gaita thank you so Much for sitting down with me it's a Pleasure to join you Jennifer As we just mentioned prospects for the Medium-term for Global growth Remain the Lowest in decades that's owed to lower Productivity why do you see productivity Remaining so low over the coming years And can AI be a game changer for that Growth has been slowing since the early 2000s it's first started for advanced Economies and then we saw that after the Great financial crisis we saw it for Emerging and developing countries and if You look at the main drivers of it Productivity growth weak productivity Growth has explains about over 50% of That decline in growth another factor is Aging demographics and declining working Age population that plays an important Role too and a third factor is just Overall investment is weaker than it was Before the GFC and so that's playing an Important part why is productivity
Growth so low I mean one of the big Factors is what we call misallocation of Resources which is if you look at the Way labor and capital has been allocated Across firms within sectors that has not Been very efficient and that has played A role in keeping productivity growth Weak now what do we need to solve this Of course we need to be able to take out All kinds of restrictions and product Markets and labor markets that generate This misallocation but we need more than That we need new kinds of technological Innovation now ai has the potential it Is promising I think there's a lot of Uncertainty though in terms of what Could happen in terms of productivity Growth the range of estimates are wide The early estimates seem to you know When you look at certain firms that have Used it you're seeing some positive Outcomes but I think it's too early to Say it has promised but it's too early To say that that's the solution all Right moving on I want to ask you about Your outlook for Global inflation Because the imfc global inflation Continuing to decline this year falling To about 5.9% but now that Iran has attacked Israel it raises the risk for burgeoning Conflict in the Middle East and just Today we heard treasury secretary Yellen Warned that the us is going to put forth
More sanctions on Iran um perhaps on Iranian oil exports so how does that Change your outlook possibly for Global Inflation this year as well as the Potential for spillovers for Global Growth developments in the Middle East Are going to have important implications For the world as of now we are not in The space where the conflict has gotten To a point where we could see uh oil Prices shooting up by a lot it's not There yet and we already see that in Terms of commodity price markets you're Not seeing much movement over there it Does depend a whole lot on how much and If we have a big escalation and uh That's the uncertainty now we do have Sources of Supply that can make up for Instance if there is a disruption in in Oil coming out of Iran I mean there is The OPEC plus but there's also us Shale So there are alternative sources of Supply that can make up for it but again We just have to wait and see to see how This develops depending on the outlook For Global inflation if it does hold um Your initial forecast you do expect Central banks to begin cutting rates in The second half of this year uh many Expect the European Central Bank to Begin cutting rates in June is that your Expectation as well and what are the Implications for the ECB cutting rates Before the US Federal Reserve so
Inflation has been coming down uh really Well in the Euro area now the economy is Also in a weaker place than say compared To the US now if the data holds up the Way we expect it will then we can see That you know there's absolutely good Ground for having a rate cut by the ECB In June now what we are seeing is US Inflation seems to be holding up a Little more stubbornly than in the Euro Area that could cause the FED to wait And it would be prudent to wait to bring In you know before you start an easing Cycle in the US so there could be that Asynchronicity but you know we don't Really see that as having big Implications for the ECB in terms of the June rate cut decision you mentioned the US feder reserve the fact that inflation Is been stickier in the first quarter of This year uh fed share J palal just said This afternoon he needs to see more data To feel more confident before he can Begin cutting rates given the economic Picture here in the US do you see the FED cutting rates at all this year Should they cut rates this year the US Economy in terms of its growth has Exceeded even our most uh anybody's most Optimistic expectations it's been a very Strong economy but that said we are Seeing signs of softening labor market And wage growth is coming down we have Seen a huge amount of disinflation that
Came last last year as Goods inflation Came down and energy prices came down so As of now we expect to continue to see Inflation declining now we've always Said this that this year was going to be Tougher than last year this year it's The last mile it is going to be bumpy And we have seen those bumps but we Continue to believe that inflation will Come down it may take somewhat longer But we're not we're in the path to Getting it down back to Target what does This mean this means for in terms of Monetary policy is that it will be Prudent to wait and see how the data Comes in over the next months before Deciding whether to ease or not in the Report it noted three rate cuts by the Fourth quarter do you really think that We could see three rate Cuts this year In the United States so when we make our Projections we have to make assumptions On what's going to happen to the Interest rate part and in this Particular case it was using the fed's Dot Plot I would say as of now given the Most recent data that we have seen that You know that this process could take Longer so you know it may not be as many Cuts it may start later again this is an Economy that is doing very well as a Strong economy and the central bank can Wait to see how inflation plays out Switching gears I want to ask you about
Trade and fragmentation in the aftermath Of the pandemic we've seen Supply chains Reconfigured in the aftermath of the Russia Ukraine war we've seen a Reweighing of trade relations how has That impacted global growth as well as The outlook for Global growth so we're At the early stages in terms of what's Happening in global trade and even in Global foreign direct investment we are Seeing a rerouting of trade channels you Know China used to be one of the biggest Trading partners at the US that's not The case anymore Mexico plays a bigger Role we're seeing supply chain stretch Goods that used to come directly from China and I go through Vietnam or go Through uh Mexico all of this adds cost And therefore has implications for for The prices of which we buy things but Still it's early days uh and that's why We remind everybody that there is still Time to make sure that we don't end up With a severe fragmentation in the Global economy because if we do that Then that just throw out all the Benefits we have of global trade Including living in environment with low Inflationary pressures um former President Trump now candidate Trump has Put forth the idea of slapping 10% Tariffs on all US exports 60% on Chinese Imports if that plan were to be Implemented what impact could that have
On global trade patterns on uh trade Relations globally would we see a step Back so we wait to be sure about what You know governments plan to do in terms Of their policies before we comment on That so I think I would hold off on that Particular Question but we are in an environment Where there We're seeing decoupling in trade across Different trading partners and all of That adds costs to households it add Adds costs to F it remains our argument That for the US to be competitive that's The goal of course is to have uh you Know strong well-trained labor force Making sure that it keeps up with the Technological developments that are Happening in the world all of that can Help strong infrastructure that that Just helps making the US competitive and Productive the US actually is doing very Well on the productivity right now in Fact compared to say uh Europe us Productivity growth is strong so it is a Strong economy and that's going to be The basis for us competitiveness Globally too I want to ask you about China because you see growth slowing This year and next um certainly there Has been some strain in terms of us Chinese relations in the aftermath Tariffs that were put on in 2017 now Those um relations seem to be easing a
Bit thawing a bit but given the Trajectory of growth um where is China's Economy now is China's economy on the Decline so we just got the first quarter GDP numbers for China and that came in Over 5% growth for this first quarter Which was more than we were expecting so We are seeing more resilience in China's Economy and it's it's a pretty Broad-based expansion we've seen it in Consumption we've seeing it in exports So it is broad-based now that said China Does have some important issues to deal With including the health of its Property sector that is weak that's a Correction that's been happening now for A couple of years it's not completed and We are still seeing weak investment over There secondly we still have weak uh Consumer confidence uh it is an economy Where we do believe the government can Help by providing more income to Low-income households because that can Help with consumption spending stronger Social safety nets can help bring up Demand it is an area where a lot more Work can be done I think China needs to Be able to bring up its demand given the Amount of Supply that it has produced so That it can raise its productivity and Its growth rates G thank you so much for Your Insight I so appreciate hope to Speak with you again soon thank you
