Gita Gopinath: Trade War Is A Factor In Global Slowdown


First On CNBC: CNBC Transcript: IMF Chief Economist Gita Gopinath Speaks with CNBC’s Steve Liesman from Fed Summit in Jackson Hole, WY Today

Gita Gopinath
Image Source: CNBC Video Screenshot

WHEN: Today, Friday, August 23, 2019

WHERE: CNBC’s “Squawk Alley” – Live from the Fed Summit in Jackson Hole, Wyoming

The following is the unofficial transcript of excerpts from a FIRST ON CNBC interview with IMF Chief Economist Gita Gopinath and CNBC’s Steve Liesman on CNBC’s “Squawk Alley” (M-F 11AM – 12PM) today, Friday, August 23rd, live from the Fed Summit in Jackson Hole, Wyoming. The following is a link to video from the interview on

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IMF Economist Gita Gopinath: Trade War Is A Factor In Global Slowdown

All references must be sourced to CNBC.

STEVE LIESMAN: Thanks, Morgan. Yeah, I’m here with the Chief Economist of the IMF. And really a huge part of the story here, which is the global economic weakness and we really have nobody better to give us the landscape around the world than Gita. Gita, thanks for joining us. How concerned are you about global economic weakness? Is a global recession a possibility here?

GITA GOPINATH: So, global growth is subdued and we describe it as fragile. There are many downside risks. And one of the risks we keep flagging is risks on the trade front, the uncertainty surrounding. And the developments we’re seeing as recently as today, you know, gives us grave concern about what’s going to happen to growth going forward.

STEVE LIESMAN: just an objective statistic here, which is that world trade has declined. And world trade is something that has declined before other recessions. Is the signal there similar to other downturns?

GITA GOPINATH: So, trade is, indeed, showing a lot of weakness. We’re seeing a lot of weakness in industrial production and manufacturing. But on the other hand, if you look at services, services are still holding up. Though not as brightly as it was at the start of this year. So, I think it’s a mixed ball of signals. On the one hand, you’re seeing a huge amount of safe assets, which is what you typically see before a recession. Equity markets are volatile, but they’re still high. So, it’s mixed around the world. And like I said, there’s consumer confidence, services sectors are still doing fairly well, especially in places like the U.S.

STEVE LIESMAN: How much of the global economic weakness is related to trade policy?

GITA GOPINATH: Some part of it is, but not all of it is. So, it’s not just the tariffs that are in place, but it’s the tremendous uncertainty about where this policy is headed, and will there be closure anytime soon? And that’s weighing on business confidence and we’re seeing it in investment. But an important part of the slowing is also what’s coming from emerging markets. And emerging markets, we’ve see pretty strong weakness in emerging markets. And this is Brazil, Mexico, Argentina, Turkey, and that’s weighing on growth and that’s coming also from idiosyncratic factors in their own countries.

STEVE LIESMAN: What should the world be right doing to offset this weakness? There are a lot of Central Bankers in there that have certain tools. There are even some Finance Ministry officials. Should they be talking together? Should there be global cooperation on the issue of addressing the issue of the weakness in the global economy?

GITA GOPINATH: Monetary policy is being accommodative. That’s an appropriate stance. It is going to be data driven and it’s going to depend upon – I mean, as Chairman Powell said, for the U.S. it is going to depend on what’s happening on the global front, but it’s also going to depend on what’s happening with inflation in the U.S. There is more to be done on the fiscal front. I think it would be a good idea for governments to plan for the possibility that they will need to use their fiscal tools more aggressively than being used right now. Especially countries that have a fiscal space. With that said, I think the number one issue out there is with respect to trade and trade policy. And that has to be addressed.

STEVE LIESMAN: Let’s do a Jim Cramer lightning round on the world here. I’m going to ask you about some regions and give me your quick answer. The U.S. Is U.S. monetary policy too tight?

GITA GOPINATH: U.S. monetary policy is being accommodative and it’s being data driven. So, it’s going to depend upon how the facts come in. If you look at the U.S. economy and the unemployment rate and consumer spending, they are quite healthy and so it would not be right to say that it’s too tight at this point.

STEVE LIESMAN: Europe. Would more negative interest rates help Europe – the European economies grow?

GITA GOPINATH: The European economy certainly needs stimulus, including on a monetary front. The traditional, conventional space is limited. They will require going into more unconventional tools. We do know that those have an impact. They do help. But again, I would also flag to the fact that they could be more done by companies like Germany on the fiscal front, given the fiscal space that they have.

STEVE LIESMAN: You’re doing great, by the way, for not knowing this game was coming. Japan. Does Japan tell us that low negative interest rates are not the cure all? And even strong government spending, don’t they have a deficit-to-GDP ratio of more than 200%? Or debt-to-GDP? It’s more like 3 300, if I’m not mistaken.

GITA GOPINATH: It is high. It’s one of the highest in the world. I think the point that has to be acknowledged is that reforms matter too — structural reforms matter. And many of these advanced economies are grappling with aging demographics, low productivity growth. And those things cannot be addressed by monetary policy or fiscal policy directly for that matter.

STEVE LIESMAN: Can you find for me a bright spot? Is there some place in the world that’s performing better than you expected and shows promise or makes you optimistic about development in certain areas?

GITA GOPINATH: I mean, as the year was progressing, it’s getting harder to find those bright spots.


GITA GOPINATH: There was the potential of recovery, and we are still projecting that for many parts of the world, including — economies. But I have to admit, it’s getting harder to see that.

STEVE LIESMAN: Are there any place — I mean, Chile seems to be holding up. Bordering in Argentina, right? Argentina, though, we didn’t talk about South America yet. This is a mess, right? Maybe you can’t respond to it, that way.

GITA GOPINATH: There are concerns. Some of the biggest downgrades we’ve made to growth have been has been in the Latin American region. We’ve had pretty dramatic cuts forecast for some parts, especially Brazil, Mexico, Argentina. So, it is an important issue. And again, the issues there are not directly about the trade tensions and the trade concerns. They have some of their own domestic problems.

STEVE LIESMAN: So you sit there at the IMF as the Global Chief Economist, right? If you could have your way, would you have the Federal Reserve cutting interest rates to help emerging markets?

GITA GOPINATH: I mean, the Federal Reserve has to follow its mandate.

STEVE LIESMAN: I know that and I understand what you’re saying and I understand the political place you’re in. But alright — let me ask you another way would it help emerging markets if the Federal Reserve eased policy?

GITA GOPINATH: Well, what would absolutely help is with the Federal Reserve keeping interest rates low, with many other Central Banks keeping rates low, financial conditions are easing. Which means that emerging markets are getting capital flows, which they would not have got if the Fed had continued to raise interest rates. So, they are benefiting from a fairly easy financial condition. But again, I have to keep coming back to the point that they’re getting hit on the other front from trade uncertainty, the impact of that global demand on commodity prices. So, it has to be a two-way street here.

STEVE LIESMAN: Let me ask about sort of longer term concerns here. President Trump posits interest rate of different countries as part of a competition. That the U.S. should be lower because European rates are low and the Germans, he says, are fighting to win. Is that the right way to look at relative interest rates in the world? Are they part of a competition that ends up being part of a currency war that ends up being a race to the bottom?

GITA GOPINATH: Central Banks around the world are focused on what’s happening globally, but also what’s happening in their individual economies. And it is not the case that all countries in the world are growing at the same rate. So, you should expect to see some divergence in interest rate policies. We just put out a blog on this about whether Feds and Central Banks in general should be engaging in some kind of a currency war. And it’s just a bad idea. For multiple reasons. One, because, you know, even the impact of having the currency war and how beneficial it is for your own country exists, but it’s small. And so, it’s not of the magnitude you want to engage in. So, it is not a good idea to go in that particular direction.

STEVE LIESMAN: Gita Gopinath, thank you for joining us. If you find a bright spot, would you give me a call or send me an email and let me know that it’s there?

GITA GOPINATH: Will do, Steve. Thank you.

STEVE LIESMAN: Thank you very much.

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