As the lingering effects of the Covid pandemic and the Russia-Ukraine war continue to be felt, it’s been a challenging few years for the global economy, but there are rays of hope as well. In an exclusive interview with NDTV in Marrakech, the International Monetary Fund’s Gita Gopinath spoke about the macroeconomic stability in India, the headwinds in China, artificial intelligence, extreme weather events and how all of these will impact the trajectory of the world economy in the coming years.
Speaking on the sidelines of the 2023 World Bank Group – IMF Annual Meetings, the First Deputy Managing Director of the IMF also spoke about the impact of the conflicts between Israel and Gaza and Russia and Ukraine on oil prices and food security.
Boundless Potential, Some Concerns
Emphasising that it is early days to assess the true potential of artificial intelligence, Ms Gopinath said the promise of generative AI could raise productivity and help boost slowing global growth.
“But it is far from certain at this point whether we are going to get all that productivity gain. Obviously, the innovation is important but it is going to require regulation. This is not business as usual, this is a very different animal that we have to deal with in terms of regulation. We have to make sure AI is used so that it actually benefits humanity,” she said.
Ms Gopinath said governments will need plans and account for the possibility of a lot of workers being affected directly by AI, and some losing their jobs.
“What we have seen traditionally with technology is this concern that it will cause a lot of layoffs and doesn’t really help create jobs. And what history has taught us is that, on net, a lot more jobs are created. They are in different sectors and demand different skills and so there are people who get affected and lose jobs but that’s where policy plays a role in making sure that they get the right support they need,” she said.
The senior IMF official also said that AI will have an impact on the general pay structure. “It is very interesting, the early studies that are coming up. In the past, as a new entrant to a particular industry, you didn’t have the experience, you had to wait to learn and therefore the pay you got was not as much. With AI you get to use the experience that others had and you get that information really quickly. So we could see somewhat more of a flattening of the pay structure. “
India Third-Largest Economy?
Asked about India’s economic growth and whether the country is on course to becoming the third-largest economy in the world by 2030, Ms Gopinath said, “India has strong growth. At 6.3%, it is one of the largest growth numbers that we have among major economies. We have 6.3% for this year and 6.3% for next year. We did the upgrade because the first quarter data came in somewhat stronger than we had expected.”
“If there is this continuing amount of public investment that happens, that seems to be catalsying private investment and consumption is holding up better than we expected, so I think those are good signs. In terms of the trillion-dollar number that India gets to, I am always a bit cautious because in the last three years we had the pandemic and Russia’s invasion of Ukraine. I wouldn’t want to venture into talking about particular dates,” she added.
Mr Gopinath pointed out that the important thing is that India’s economy is strong, there is macro stability and inflation is coming into the RBI’s target band. “The financial sector is the strongest it has been in a long time. If you combine that with structural reforms, a lot of which is still needed, that could generate a lot of growth in India,” she said.
Ms Gopinath said the IMF had downgraded China’s growth projection slightly, from 5.2% to 5% for this year, and the organisation sees growth slowing down in China in the coming years. She emphasised that the property sector is an important concern and so are its ageing population and weaker productivity growth.
“In terms of spillovers to Asia as a whole, the estimate we have is that when China’s growth goes down by 1 percentage point, it shaves off about 0.3 percentage points out of growth over a five-year period for Asian regions. If I look at India specifically, I don’t see strong direct spillovers. We don’t expect to have a big effect of India slowing down. But if there is a more general slowdown in the global economy that comes from Asia slowing down, of course that would feed into growth for India,” she said.
World Growth, Food Insecurity
Asked about the reasons behind the global growth outlook for 2023 being 3%, well below the pre-pandemic levels, Ms Gopinath pointed to ageing demographics and weakening productivity. She said China plays an important role in this.
On food insecurity stemming from the Russia-Ukraine conflict, she said it affects low-income countries the most because they spend a big percentage of their consumption basket on food. She asserted that while food prices have come down, they are still quite high and that remains a concern.
Ms Gopinath said that among the measures taken by the IMF to address this was the creation of the Food Shock Window to help countries in need.
Climate And The Future
Ms Gopinath said that while there is an increase in extreme climate-related disasters and the economic cost of that is adding up, the implications for global growth are small for now because the larger economies are doing relatively okay.
“For individual countries, small island nations, this can be very, very big. Even in India, temperatures are going up at twice the rate that it’s happening, on average, in the world. So it is quite vulnerable,” she said.
The IMF official pointed out that India played a big role in pushing for the reforms of Multilateral Development Banks through its G20 leadership and she sees momentum on that front. She also said the inclusion of the African Union into the G20 is very important because most of the working-age population will be on the African continent over the next many years.