2 February 2024

Gita Gopinath, Deputy Managing Director of the IMF, January 25, 2022. The economist spoke at the annual seminar of the European Central Bank (ECB), Monday June 26.

En these early heat waves, a little cold shower can’t hurt. But the one administered by Gita Gopinath, the chief economist of the International Monetary Fund (IMF) on Monday, June 26, will not be to everyone’s taste. The brilliant Harvard professor and deputy managing director of the IMF was speaking at the European Central Bank’s (ECB) annual forum in the pretty seaside resort of Sintra, Portugal. She recalled a few truths that will not necessarily please the markets and governments.

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Explosion of deficits and debts

The first is that inflation will last. Supply shocks, when raw materials become scarcer, transport is expensive and energy is expensive, always take longer than expected to resolve. Especially since this time, these obstacles are exacerbated by geopolitical tensions, the war in Ukraine, the decoupling with China, which naturally push prices up (shortages, relocations, etc.). Without forgetting the climate transition, which will be very expensive, more than 60 billion euros per year just for France, according to the official report by economists Jean Pisani-Ferry and Selma Mahfouz, submitted in May.

The second inconvenient truth is that the developed world faces a structural labor shortage due to its demographics. Good news for those looking for a job, but which hinders the smooth running of businesses and pushes wages up. All the more so if the countries, under the pressure of their public opinion, close themselves to immigration. The extreme case being that of Great Britain, whose shortage of workers, accelerated by Brexit, keeps the country in crisis.

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The third is that current government policy is incompatible with a rapid return to 2% inflation, the current target of central banks. To mitigate the impact on populations and restore competitiveness to their businesses, many countries have embarked on very generous budgetary policies intended to support purchasing power and businesses, in line with those initiated during the crisis. sanitary. Resulting in an explosion of deficits and debts, as in France or Italy. A situation, warns Gita Gopinath, which will push the central banks to have to arbitrate between preventing a serious financial crisis of the States and fighting against inflation by increasing the rates, which will further weaken the indebted. A danger that deserves a little cold shower.

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