## Transcript of the interview granted by Maurice Obstfeld, IMF Economic Counsellor and Director of Research to a group of media _IMF News, December 4, 2018_ ## Source details **Canonical URL:** [Transcript of the interview granted by Maurice Obstfeld, IMF Economic Counsellor and Director of Research to a group of media](https://www.imf.org/en/news/articles/2018/12/12/tr120418-transcript-of-the-interview-granted-by-maurice-obstfeld) ## Other formats - [Markdown version](/en/news/articles/2018/12/12/tr120418-transcript-of-the-interview-granted-by-maurice-obstfeld/index.md) - [Structured JSON version](/en/news/articles/2018/12/12/tr120418-transcript-of-the-interview-granted-by-maurice-obstfeld/index.json) - [Bundle manifest](/en/news/articles/2018/12/12/tr120418-transcript-of-the-interview-granted-by-maurice-obstfeld/bundle-manifest.json) ## Bibliographic details - Published: December 4, 2018 --- ### Changes in global political economy and multilateralism - Maurice Obstfeld notes a marked change in the political sphere since he started the job: institutions of multilateralism that had been "basically unquestioned" are now more contested, especially by the U.S. government. - He observes a "more conflictual approach to international economic relations" and uncertainty whether this will stabilize after adjustments in trading relationships or become an ongoing feature. - Embedding rising economies into multilateral frameworks is emphasized as important; the IMF has pursued initiatives (for example, the SDR initiative) intended to "keep them at the table." ### China’s growth, technological advancement, and policy implications - Algebraic point: if China and the U.S. keep growing at close to current rates, China will eventually reach U.S. size; the "size issue" is less important than the character of China's economy. - China increasingly produces "more advanced products and more technological sophistication." - IMF World Economic Outlook work highlighted technology spillovers and identified a relatively small group of technological leaders; China and Korea have joined frontier producers (China still classified as emerging, Korea as advanced). - Trade disputes center on intellectual property; reforming the IP regime is presented as "a big to-do for the global multilateral order." - Policy implications and recommendations: - Entice China into a global framework via multilateral negotiations under which China changes some trading practices while accommodating legitimate Chinese economic goals. - Encourage further opening to foreign investment. - Reduce official support that prevents hard budget constraints for state-owned enterprises; address "an excessively high rate of credit growth." - Move toward a more flexible currency to help adjustment and potentially defuse trade tensions. ### Globalization versus "de-globalization" - Obstfeld considers talk of de-globalization "a little bit overdone." - Financial globalization remains intact; observed shifts are more about trade and technological trends prompting some reshoring. - He believes current trade tensions are damaging because "so much of global investment and production are tied up with trade" but unlikely to recreate the Great Depression–era collapse of trade. ### Reflections on 40 years of China’s reform and opening up - Deng Xiaoping–era opening produced "remarkable positive effects" on China’s standard of living and spillovers to other emerging economies. - Significant room remains for further opening and market reforms to enhance growth and stability. - Specific areas for further reform: intellectual property, foreign investment openness, enforcement of hard budget constraints, financial sector oversight, and currency flexibility. ### Populism, European politics, and fiscal rules - A strong showing of populists in European Parliament elections could push toward "more national sovereignty and away from some of the rules of the EU," risking backtracking on single-market–promoting rules and efficient resource allocation. - Potential pressure to relax budgetary rules is noted as problematic given indebtedness in some countries; the task is to rebuild fiscal buffers, not to increase reckless spending. ### Angela Merkel’s economic legacy and European institutional reform - Merkel provided leadership in preserving the Euro and advancing institutional reforms after the Euro crisis. - Progress cited: single supervisory mechanism, single resolution mechanism, stronger surveillance practices. - Broad recognition has grown (though not universally accepted) for the need for common deposit insurance, a full banking union, and capital markets union—described as "huge progress" linked partly to Merkel’s leadership. ### Central bank independence, remit, and accountability - The crisis changed views: central banks proved to have broader responsibilities beyond setting policy interest rates—financial stability, payments system, lender-of-last-resort functions. - Actions since the crisis (special facilities, unconventional policies, negative interest rates, LTROs, large sovereign debt purchases) increased political attention and questioned independence. - Two main consequences highlighted: - Politicians increased scrutiny because central banks exercised wide-ranging powers that affect broad segments of the economy. - Central banks became more involved in areas that verge on fiscal policy, raising concerns about transparency and accountability. - Policy challenges and recommendations: - Central banks must improve transparency and communication to the public to reduce risks of politically motivated attacks and misperceptions. - Distinguish legitimate accountability questions from purely political motivations; reassess monetary policy frameworks (e.g., planned Fed reassessment in June at Chicago). ### Global slowdown, U.S. fiscal stimulus, and downside scenarios - Obstfeld expects somewhat lower growth for 2019 compared with the current year, partly due to reversal of fiscal incentives and public spending; sharper fiscal reversal possible in 2020 than in 2019. - Signs of slowdown outside the U.S. are "more dramatic" with negative or disappointing Q3 outcomes for parts of Asia and Europe (Germany had negative Q3 growth). - Nightmare scenario: rising U.S. inflation leads to a high Fed policy rate just as fiscal stimulus is withdrawn. - Current market and Fed signals suggest expectations for a more moderate pace of interest rate increases than earlier anticipated. - Baseline: U.S. growth "well above potential next year but on a slowing path into 2020"; recession is not the baseline though probabilities exist. ### India: reforms, vulnerabilities, and shadow banking - Reforms under the Modi government highlighted as "fundamental": goods and services tax, insolvency and bankruptcy code, and financial inclusion efforts. - Growth generally "quite solid" (with a weaker Q3 in the referenced year). - Key vulnerabilities: - Shadow banking (non-bank finance) has become a more evident risk; stricter oversight is needed. - Legacy corporate debt from bad infrastructure projects remains concentrated in banking and has migrated to shadow banking as banking oversight tightened. - Policy recommendations: - Maintain reform momentum through the election period. - Continue fiscal adjustment and contain financial pressures to avoid rapid deterioration of vulnerabilities. ### Gita Gopinath appointment, future research emphases, and emerging macro risks - Gita Gopinath described as an "illustrious" economist with longstanding collaboration; judged a "fantastic appointment" as IMF Chief Economist. - Major issues for the Research Department and the Fund going forward: - Continued focus on income distribution, market power, determinants and effects of trade, and trade tensions. - Two standout frontier challenges for coming years: - Climate change: expect more macro effects from extreme weather events; macro implications will grow in importance. - Major cyber event: the risk of a cascading cyber event with significant financial and macroeconomic consequences—private sector underinvestment due to public-good externalities argues for stronger government action and international focus on spillovers. *Transcript of the interview granted by Maurice Obstfeld, IMF Economic Counsellor and Director of Research to a group of media — December 4, 2018* --- ## References - [Maurice Obstfeld](http://www.imf.org/external/np/bio/eng/mo.htm) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2018/12/12/tr120418-transcript-of-the-interview-granted-by-maurice-obstfeld_