Trade Tensions Pose Tougher Test For Emerging Markets Than Pandemic: IMF’s Gita Gopinath

Unlike the pandemic, which triggered a uniform economic shock that allowed monetary authorities across the globe to react with synchronised interest rate cuts and stimulus measures

Gita Gopinath, First Deputy Managing Director at the International Monetary Fund

Source : PTI

The ongoing global trade disputes pose a more complex challenge for central banks in emerging markets than the economic crisis brought on by the COVID-19 pandemic, according to Gita Gopinath, First Deputy Managing Director at the International Monetary Fund (IMF).

In an interview with the Financial Times, Gopinath noted that while central banks in developing economies had greater flexibility to implement swift monetary easing during the pandemic, the current situation involving escalating tariffs and trade tensions offers no such clarity.

Unlike the pandemic, which triggered a uniform economic shock that allowed monetary authorities across the globe to react with synchronised interest rate cuts and stimulus measures, the ripple effects of a trade war are less predictable and more fragmented. This uncertainty, Gopinath said, complicates decision-making for policymakers in emerging markets, where the economic consequences can vary widely based on exposure to global trade, reliance on exports, and sensitivity to commodity price swings.

“This time the challenge is going to be greater for them, compared to the pandemic,” she told the publication.

Tariff Escalation

Tariff escalations and protectionist measures tend to disrupt global supply chains and dampen investor sentiment, potentially triggering capital outflows and currency volatility in emerging economies of the world. These dynamics can constrain the ability of central banks to support growth without risking inflation or financial instability.

Gopinath's remarks come at a time when global economic fragmentation is on the rise, with major economies adopting inward-looking policies that may leave smaller, trade-dependent nations more vulnerable. The IMF has previously cautioned that persistent trade conflicts could weigh on global growth and exacerbate inequalities between advanced and developing nations.