Still, she said the world economy has been “somewhat resilient” in the first half of the year, reflecting a degree of front-loaded trade activity in both exports and imports.
However, Gopinath warned of multiple risks to global growth for the rest of the year, as tariff effects come into play.
“Economies in Asia that are very reliant on trade with the world – the consequences can be much more significant than larger economies like Europe and the US, where they’re much less reliant on external demand for their growth,” she said.
“But with the global economy projected to slow, I think everybody faces headwinds.”
This includes the US which, by imposing tariffs, could bring about negative outcomes for itself, such as weakening output and rising prices for goods.
US RISKS INFLATION
The IMF has slashed its estimates for American economic growth by 0.9 percentage points to 1.8 per cent for the year. It also increased its forecast for US inflation by about 1 percentage point to 3 per cent.
Gopinath said Trump’s tariffs have “real consequences” for the world as an inflation spike in the US will have a ripple impact.
“There are very high levels of uncertainty … (which) affect investment. We are seeing geopolitical considerations being a bigger factor in who trades with whom,” she said.
She pointed to Vietnam, which has emerged as a “connector country” for Chinese goods to pass through indirectly to the US. But with threats of a crippling 46 per cent tariff, Hanoi is rushing to crack down on the shipment of Chinese goods to America.
US tariffs on China are also set to affect regional countries as Beijing redirects exports and shifts production to cushion the blow.
“As China’s trade with the US is dropping quite significantly, its trade is getting rerouted to the ASEAN (Association of Southeast Asian Nations) region, other regions in Asia and to Europe,” said Gopinath.
“So, there is a question about whether this could have a disinflationary effect on many of these regions, as China sells more of its goods (there).”
