Gita Gopinath

“And if it gets even worse and we are looking at oil averaging $110 a barrel this year, and this is a much more disrupted situation with bigger hits to energy infrastructure, which means next year or two, oil is going to stay very high, and financial conditions get a whole lot worse, then we're looking at the world economy growing at 2%, which, again, those are extremely rare occurrences. So the risk seems squarely to the downside at this current point.”

“Now if this continues and the fact that we are still here with no ships going through the Strait Of Hormuz, regardless of the fact that there's no bombs necessarily falling, but the fact that shipping has basically come to a standstill through that Strait has much more durable implications than what would be there in the reference scenario. And so the IMF provided what they called an adverse scenario, which is when we are looking at oil averaging about a $100 a barrel for this year as opposed to the assumption in the reference scenario, which is more like $82 a barrel.”

“So India, among the major economies, India is being affected because of its heavy reliance on The Middle East in terms of imports of oil, also liquefied petroleum gas, which is LPG, which is what goes into cooking purposes. There's also a reliance on The Middle East just as a hub for sending their goods to other parts of the world. Also reliance on remittances from the region. So there are multiple channels through which India gets affected. And I think what we're seeing most directly is the effect that's showing up in terms of pressure on the currency because the expectation is that as the import bill grows, the current account deficit grows, and in the absence of strong portfolio inflows into India, that's gonna put pressure on the rupee.”

“The US is doing incredibly well because of where it is in the AI race. I mean, it is at the front. China is also up there pretty close. Outside of these two countries, there are not many other regions of the world that have this much of dynamism when it comes to AI. And if you look at 2025 and growth in 2025, basically, AI, you know, offset the drag that came from tariffs, right, almost one to one.”

“There are lots of reasons to think we might be in an AI bubble. For one, the simple reason, again, now we're back to U. S. Stock markets being driven by basically the AI stocks. Those are the ones that are leading the run up in stock valuations recently. And so the risk is that the current incumbents have invested a large amount in their AI infrastructure, in data centers, in trillions of dollars, in the hope that they will be able to raise revenues that can explain, justify this level of, you know, investments that they're making. And that is completely unclear because you could very easily have another competitor come in and produce the same product or pretty close to the same product, a fraction of the cost, given how the technology is evolving.”

“Well, the war was already the war that Russia was waging against Ukraine was already taking a toll on Russia before this conflict came about. So actually, in the absence of this conflict, they would have been in much worse place because of what's happened with the oil prices going up and the fact that countries are being allowed to go and buy from Russia. But as the longest story goes, Russia made some bad choices. Its decision to invade Ukraine has been tremendously costly. It has led to an allocation of resources to this war economy, and that's affected their productivity.”

“I think energy independence is going to be critical. And, thankfully, for many countries in the world, there are alternatives. I mean, there are renewables that one can invest and develop even more. I mean, Sri Lanka with, you know, solar can do great. So energy independence, I think, is very doable for countries. The cost of doing it in terms of just the inputs that are required is cheaper, much cheaper than it used to be.”

“Take the example of Sri Lanka. Sri Lanka was a country that went through a very bad crisis, was on the path of recovery. This kind of a shock is, like, a nightmare situation for a country like that, which is just trying to get out of the crisis that it had with fuel prices the way it is, with fertilizer prices going up. More generally, with jet fuel prices going up, which means travel is going to become much more expensive, which means tourism is affected in the region, countries like that. Pakistan is another country that is in a fragile situation with everything that's going on.”

“And if it gets even worse, and we are looking at oil averaging $110 a barrel this year, and this is a much more disrupted situation with bigger hits to energy infrastructure, which means next year too, oil is going to stay very high and financial conditions get a whole lot worse. Then we're looking at the world economy growing at 2%, which again, those are extremely rare occurrences. So the risk seems squarely to the downside at this current point.”

“I learned recently that nylon and polyester come from petroleum products. So the price of thread has doubled in Bangladesh. We know that universities have been shut down in many countries in South and Southeast Asia. The Philippines declared a national energy emergency. Many airlines around the world, but many of them specifically in Asia, are cutting flights because jet fuel prices have doubled.”

“Take the example of Sri Lanka. Sri Lanka was a country that went through a very bad crisis, was on the path of recovery. This kind of a shock is like a nightmare situation for a country like that, which is just trying to get out of the crisis that it had with fuel prices the way it is, with fertilizer prices going up. More generally, with jet fuel prices going up, which means travel is going to become much more expensive, which means tourism is affected in the region. Countries like that, Pakistan is another country that is in a fragile situation with everything that's going on.”

“I think energy independence is going to be critical. And thankfully, for many countries in the world, there are alternatives. I mean, there are renewables that one can invest and develop even more. I mean, Sri Lanka with, you know, solar can do great. So energy independence, I think, is very doable for countries. The cost of doing it in terms of just the inputs that are required is cheaper, much cheaper than it used to be.”

“And if you look at 2025 and growth in 2025, basically, AI offset the drag that came from tariffs, right? Almost one to one. So that was the positive effect that came from AI. And what's interesting is you see that despite everything that's happened over the last 24 months or so, the US remains the part of the world where people want to hold equities. So if you look at the net capital inflows into the US in 2025, that was at a record high.”

“So the risk is that the current incumbents have invested a large amount in their AI infrastructure, in data centers, in trillions of dollars, in the hope that they will be able to raise revenues that can explain, justify these level of investments that they're making. That is completely unclear because you could very easily have another competitor come in and produce the same product or pretty close to the same product, a fraction of the cost, given how the technology is evolving. Then the current incumbents can't really make the money they're expected to make to justify their investments.”

“But as the longer story goes, Russia made some bad choices. Its decision to invade Ukraine has been tremendously costly. It has led to an allocation of resources to this war economy, and that's affected their productivity, that's affected the more critical investments that they need to make, and it's also affected the number of people who are staying in Russia and willing to work and contribute to the country. There's been this exodus of people out of Russia. So for all those reasons, you know, this is not going to end well.”