Gita Gopinath, Professor of Economics at Harvard University and former First Deputy Managing Director of the IMF, delivered a stark warning at the World Economic Forum 2026, stating that the global economy is entering an unusually fragile phase marked by unexpected fractures within the Western alliance itself.

Unprecedented Western Alliance Fractures

Speaking exclusively with CNBC-TV18's Shereen Bhan on the sidelines of Davos 2026, Gopinath highlighted a concerning shift in global economic dynamics. "I think geo-economic fragmentation was expected, but not within the West," she explained. "The US and Europe are turning against each other," calling this development the biggest global economic story of 2026.

The Harvard economist emphasized how uncertainty around the global economic order has deepened, with Donald Trump once again setting the agenda at Davos. "The Trump story is far from over, and tomorrow's message could be very different. I believe President Trump has set the agenda at Davos, with the world watching every word," she observed.

Tariff Impact More Muted Than Expected

Despite widespread concerns about trade tensions, Gopinath revealed that the economic impact of tariffs has been significantly more restrained than initially feared. She provided crucial context on the actual versus perceived tariff burden:

"They remain a headwind, but not a growth killer," Gopinath noted. She attributed the resilience to a combination of AI-led investment, stock market rallies, and fiscal stimulus across the US, China, and Germany, which have helped offset trade-related pressures.

Federal Reserve Independence Under Threat

Gopinath expressed serious concerns about mounting political pressure on the US Federal Reserve, describing recent developments as sending a "chilling signal" to policymakers globally. "This isn't really about Jay Powell, with his term ending in May," she clarified, emphasizing that the broader implications extend far beyond individual leadership.

She warned that criminal investigations linked to rate decisions, while unlikely to succeed legally, create a dangerous precedent. "It signals that dissent could invite investigations and state pressure," she explained, calling the threat to central bank independence the real risk facing monetary policy.

AI Boom Concerns and Valuation Questions

While acknowledging AI's role in driving growth and productivity, Gopinath cautioned about the concentrated nature of these gains and uncertain monetization prospects. "No single company yet has a revenue model that looks fully defensible," she stated, noting that valuations across both public and private AI firms are increasingly being questioned.

Drawing parallels with the dot-com era, she warned that a low-cost technological breakthrough replicating AI capabilities could leave large investors significantly exposed. However, she noted that some excess froth was already squeezed out toward the end of 2025, with investors becoming more selective and focusing on profitability over hype.

India's Growth Trajectory and Challenges

Gopinath confirmed India's position as the fastest-growing major economy globally, projecting it will become the world's third-largest economy by 2028. She praised the transformative impact of public infrastructure improvements, both physical and digital, along with successful reforms.

However, she identified ongoing challenges including job creation, land acquisition, and judicial reforms as unfinished priorities. On currency movements, she noted that recent weakness reflects delayed depreciation following earlier RBI intervention, with part of the 2025 move unwinding pressure held back in 2024.

Currency and Market Outlook

Regarding global currency dynamics, Gopinath maintained that dollar dominance is likely to persist despite marginal erosion of its influence. "No fiat currency matches the depth of US financial markets," she explained, making rapid shifts away from the dollar extremely difficult. She noted gold's increasing attractiveness as a hedge in the current environment.

The economist concluded that while the US economy remains in solid shape driven by AI-fueled growth, resilient labor markets, and strong household balance sheets, significant risks persist around inflation pass-through and financial conditions.

Source: https://www.cnbctv18.com/world/davos-wef-2026-why-the-global-economy-is-more-fragile-than-it-looks-gita-gopinath-exclusive-harvard-university-ws-l-19825750.htm

Harvard University economics professor Gita Gopinath has taken to social media to criticize US tariffs, asserting that their overall impact on the US economy is negative. Her analysis, based on four key metrics, reveals a complex picture of economic consequences.

Revenue Increase vs. Economic Costs

Gopinath acknowledges that tariffs have substantially boosted government revenue:

However, she points out that this increase comes at a cost:

• The burden is almost entirely borne by US firms
• Costs are passed on to consumers
• Effectively functions as a tax on US businesses and consumers

Inflationary Pressures

The tariffs have contributed to inflation, albeit in varying degrees:

• Overall inflation: Small increases
• Specific sectors with more substantial impacts:
  • Household appliances
  • Furniture
  • Coffee

It's worth noting that US annual inflation accelerated to 2.90% in August.

Trade Balance and Manufacturing Sector

Contrary to the intended effects, Gopinath found:

• No signs of improvement in the US trade balance
• No positive impact on the manufacturing sector

Recent data shows:

International Trade Relations

The tariff situation has broader implications for international trade:

• India faces a 50% tariff on most exports to the US
  • Half of this is a penalty for Indian purchases of Russian oil
• US-India trade deal negotiations have not yielded an agreement
• The Trump administration has entered bilateral trade deals with:
  • Japan
  • South Korea
  • Vietnam
  • European Union
  • United Kingdom

Gopinath's analysis suggests that while tariffs have increased government revenue, their overall economic impact appears to be negative, affecting US businesses and consumers while failing to improve trade balance or boost manufacturing.