In what is being seen as targeting US President Donald Trump's America First policies and other protectionist measures like tax rate cuts, several world leaders at the WEF summit here have openly come out against protectionism and inward-looking economic policies.
Trump himself is scheduled to address the World Economic Forum (WEF) annual meeting on Friday, while his top administration officials are already defending his policies strongly here.
"If we look at India and China, they all are for cooperation with the European Union," Merkel said.
In her special address delivered in German, she told the summit that creating a shared future in a fractured world will indeed be the right model for 2018.
Germany wishes to be a country that helps in solving the problems of the world and "we believe that protectionism is not the right thing", she noted.
"We think that shutting ourselves off, isolating ourselves, will not lead us into a good future. Protectionism is not the answer... We also believe that multilateralism is the right answer and unilateral decisions are obviously not right," Merkel said.
On what can be done to strengthen multilateralism, she said, "We see in EU how 27 members try to find a solution. In Germany also we have to talk with multiple stakeholders and at times do some compromise. This is how things work".
Every time there are unsolved questions and problems, those things work like poison, she added.
The German chancellor also said multilateralism is under threat and protectionism is not the answer to the world's problems.
On Tuesday, Modi had hit out at protectionist tendencies, saying those can be as dangerous as terrorism and climate change.
"Frankly speaking, the country I have the honour to represent and where I am chancellor has difficulties. And polarisation is something that we see in our country as well, which we haven't had for decades," she said.
Talking about populism and polarisation, she said such tendencies have been rising but Germany would not shy away from its responsibilities at the global level.
Stressing the need to strengthen the Eurozone, she called for having capital markets union as well as complete banking union.
"We have to cooperate on foreign policy front. If 27 European Union member states are not able to send a clear and united signal to big countries such as China, India, the US, we will fail," she said.
Merkel regretted that the UK would no longer be a member of the EU but hoped for a robust and close partnership with the country.
Expressing confidence that she would form the government in Germany, the chancellor said she would continue with the ongoing innovations for welfare of the people.