Former IMF chief economist: The global economy is

# Zhao Ying

Source: Wallstreetcn

Former IMF Chief Economist Gopinath issues a rare alarm: the global economy is far more fragile than imagined. Less than two weeks into the Iran conflict, oil prices have risen sharply. She forecasts the average crude price this year will climb to $75 per barrel—enough to drag down global growth and push up inflation. Even more alarming: countries’ fiscal space has been “completely exhausted.” Even G7 members like the UK, France, and Germany are not immune. In the event of a major global crisis, policymakers will have almost no tools left.

Gita Gopinath, former chief economist of the International Monetary Fund (IMF), warns the global economy is far more fragile than widely perceived. Governments have nearly exhausted their fiscal room, and a protracted war in Iran triggering sustained oil price shocks would leave the global economy with little effective means to respond.

In an interview with Bloomberg News on Tuesday, Gopinath said oil prices have risen markedly in less than two weeks since the Iran conflict erupted, putting downward pressure on 2026 global growth.

She expects the average crude price this year will likely settle around $75 per barrel, rather than the $65 baseline used in many prior forecasts. This gap alone could shave 0.1 to 0.2 percentage points off global growth and lift global inflation by roughly 0.5 percentage points.

Gopinath also notes that global policy space has been “completely exhausted compared to the early days of the pandemic.” Combined with record-high global debt, this leaves countries with extremely limited room to maneuver in a major crisis.

## Fiscal Space in Crisis—Even G7 Not Immune

Gopinath points out that insufficient fiscal space “used to be mainly a problem for emerging markets and developing economies,” but the strain has now spread to some advanced economies. Government bond yields in the UK, France, and even Germany are rising, she says, sending market warning signals against further borrowing by these G7 members.

Global debt swelled to a record $348 trillion last year, marking the fastest growth since the COVID-19 pandemic. According to the Institute of International Finance, developing economies face over $9 trillion in refinancing needs this year. With volatile global liquidity conditions, their risk exposure has risen sharply.

Shrinking aid funds further compound fragility. The Trump administration shut down the U.S. Agency for International Development (USAID). Bloomberg analysis shows U.S. foreign aid commitments plummeted by more than half in the fiscal year ending September 2025—from $31.6 billion to $14.7 billion. Meanwhile, the United Nations warns its funding could run out by July, even after deep cuts.

## Monetary Policy Shifts Blocked; Dollar’s Dominance Unshaken (For Now)

On monetary policy, Gopinath says the Iran war will push the Federal Reserve, Bank of England, and European Central Bank to maintain tighter policy stances than otherwise. “Even before this shock, the case for near-term Fed rate cuts was already weak. This shock only makes cuts less likely,” she states.

On the dollar’s performance amid Middle East tensions, Gopinath says it has followed “traditional safe-haven logic” with no anomalies. She sees no signs of a structural shift in global financial decision-making that would undermine the dollar’s dominant role.

Gopinath also cautions against narratives of global economic resilience. The resilience shown by the global economy in 2025 amid tariff shocks should not breed excessive optimism, she argues. “I don’t think people should look at this and say, ‘Wow, this is a very resilient world economy,’” she says, noting that pillars of global growth—including the AI supply chain—could change rapidly. The IMF raised its 2026 global growth forecast slightly to 3.3% in January. An updated World Economic Outlook is due next month.

## Risk Warning and Disclaimer

The market involves risks; investments require caution. This article does not constitute personal investment advice, nor does it account for the specific investment objectives, financial situations, or needs of individual users. Users should assess whether any opinions, views, or conclusions herein suit their particular circumstances. Investment based on this article is at your own risk.