Former IMF Chief Economist Warns of $35 Trillion Global Market Loss in Next Financial Crisis

Gita Gopinath, former Chief Economist and Deputy Managing Director of the International Monetary Fund (IMF), has warned that a potential correction in the U.S. stock market could have devastating ripple effects across the global economy.

In a recent commentary, Gopinath argued that the current rally — largely fueled by enthusiasm for emerging technologies such as artificial intelligence (AI) — is unsustainable and may soon unwind.

“There are growing reasons to be concerned that the ongoing rally is setting the stage for another painful market correction,” she wrote, adding that such a downturn could trigger an international crisis given the deep interconnection of global financial markets, particularly in major economies across Europe.

A Crash on the Scale of the Dot-Com Bubble

Drawing parallels to the early 2000s dot-com crash, Gopinath estimated that the U.S. economy could lose as much as $20 trillion, or 3.5% of its GDP, while international investors could face an additional $15 trillion in losses — nearly 20% of the GDP of the rest of the world.

“A market collapse today is unlikely to result in a short-lived and relatively mild downturn as it did after the dot-com bubble,” she cautioned. “Structural vulnerabilities and the current macroeconomic context are far more dangerous. We must be prepared for deeper global repercussions.”

The AI Boom and Market Overexposure

Gopinath’s remarks echo growing concerns among economists that the dominance of AI-related firms is distorting perceptions of U.S. economic strength. According to JPMorgan, companies heavily exposed to AI now account for 44% of the S&P 500’s total valuation, up from 22% in 2022. This rapid concentration has added nearly $5 trillion in household wealth in recent years, amplifying the risks of a sharp reversal.

Such a crash, she warned, would not be confined to Wall Street. Retail investors have become deeply intertwined with equity markets following the AI-driven boom, meaning a downturn could hit both financial institutions and ordinary households alike. Beyond financial losses, the shock could spill into key sectors tied to the AI supply chain — including energy and semiconductors — potentially pushing the U.S. economy into recession.

Preparing for What Comes Next

While the timing and scale of a potential AI-linked market collapse remain uncertain, analysts agree that investors should act prudently. Maintaining a diversified portfolio and avoiding overvalued stocks could help mitigate potential losses. Allocating part of one’s holdings to safer assets — such as gold, which has recently surged in price — may also provide a hedge in the event of a severe correction.