“In terms of the more structural side of inflation, it is important for countries to diversify the sources of where they buy goods from,” Gopinath, first deputy managing director at the International Monetary Fund (IMF), said in a livestreamed WEF discussion from Davos, Switzerland, about tackling living costs.
“Heavy reliance on only one country, we know from the German experience, can create a lot of trouble. And so diversification is very important.”
On that same note, Gopinath questioned the logic of countries turning entirely to their domestic economies to bring costs lower.
“The answer is certainly not to bring all your production home,” said the IMF’s number two after Managing Director Kristalina Georgieva. “This is a risk that we see [in that] and it is a significant test to the global economy. The reason we had three decades of being able to keep inflation down was because we had trade with many countries in the world that put cost pressures down for households and firms. But I see the tendency now in response to the pandemic and the [Ukraine] war is to go maybe [toward] the other extreme and say the only solution is for us to do everything in-house and that is the perfect recipe for us.”
Gopinath said her concerns about the present fight against inflation was the notion that “everything [had to be] sealed” within.
“There are some criticisms about globalization and I think at the moment, we have a period of opportunity, a window of opportunity. Russia's war against Ukraine, brought us [non-Russian allies] as value partners together and we were able on the G7-level, under the German presidency last year, to found [a] climate club. I think this is impressive example of policy-making power and so why [should we be] stopping there. You should continue these efforts," she added.
German Finance Minister Christian Lindner concurred partly with Gopinath, citing his nation’s previous overreliance on Russian gas.
“When it comes to Germany, if I may add, we had this very strong dependency, especially on Russian energy imports, in our domestic market. We were ridiculously dependent on Russia and now we are making efforts to overcome [that]. This situation and I'm happy to tell you [is] already built into LNG terminals within some months,” Lindner said, referring to liquefied natural gas terminals. “And so, this very special situation poses an opportunity for Germany to improve our overall competitiveness by supply-side measures.”
Russia’s share in Germany’s gas mix has dropped to some 20% this year from 55% last year, as per data from energy lobby group BDEW.