Obstfeld made the remarks during an interview as the IMF released its updated World Economic Outlook report on Monday.
The IMF kept its growth forecasts for the global economy unchanged for this year and the next year, but warned of escalating trade tensions that could derail the global recovery.
“There are a number of challenges, I think the biggest is around trade policy and trade tensions, where there is a real big risk to global growth if the threatened measures and countermeasures all come to pass and the business confidence suffers as a result. There are other risks out there for high levels of private and public debts in many economies, as interest rates rise could cause problems. The strong dollar that we are seeing is having an effective tightening financial condition in emerging and frontier markets. And that is affecting a few of them right now. If interest rates in the U.S. rise very sharply, that could be a bigger effect down the road,” said Obstfeld.
The IMF report came after the Trump administration unilaterally imposed high tariffs on imported steel and aluminum products, provoking strong opposition from the domestic business community and retaliatory measures from U.S. trading partners.
The risk that current trade tensions escalate further — with adverse effects on confidence, asset prices and investment — is the greatest near-term threat to global growth, Obstfeld warned at a briefing, adding that countries must resist inward-looking thinking.
“Well, what we would like to see is a move to strengthen the multilateral system that has been so successful in promoting trade expansion throughout the entire post-war period. To address some of their concerns, whether it’s about intellectual property, whether it’s about support by state-owned enterprises in the Chinese case, I don’t think the steel and aluminum issues are beyond being resolved also if countries will work together,” said Obstfeld.