By Josh Zumbrun 

Maurice Obstfeld, the retiring chief economist of the International Monetary Fund, is on his way out the door with a warning that global growth is slowing and the U.S. will likely feel the drag as well.

"The slowdown outside the U.S., to the extent we're seeing signs of that, seems to be more dramatic," Mr. Obstfeld said in an interview with reporters before his end-of-the-year departure from the IMF. His assessment was a rhetorical downgrade from October, when the IMF's official forecasts characterized global growth as "steady" or "plateauing."

Mr. Obstfeld said Asian and European economic data disappointed in the third quarter. In Japan and Germany, for example, gross domestic product shrunk. The U.S. will likely post stronger growth, but he doesn't expect it to avoid the global downdraft entirely.

"For the rest of the world there seems to be some air coming out of the balloon and that, I think, will come back and also affect the U.S.," he said.

The remarks are a downbeat note from an economist who, during his three years at the IMF, was often upbeat. During Mr. Obstfeld's tenure, the IMF began projecting, in April 2016, that the global economy would accelerate in 2017. The institution continued to notch up the forecast as synchronized global growth materialized.

Mr. Obstfeld spoke often of the risks to the economy, especially from a trade war. Under his watch, IMF economists published research arguing higher tariffs lead to slower growth, more unemployment, higher inequality, exchange rate appreciation -- and no improvement in the trade balance.

But throughout the summer he surprised some observers by sticking to optimistic economic forecasts even as trade tensions mounted and a number of emerging markets, such as Turkey and Argentina, faced severe currency collapses.

While some emerging markets stumbled, other commodity-producing nations were reaping the benefits of higher energy and agriculture prices. And while Europe and China were wrestling with slowdowns, the U.S. economy muscled higher. On the whole, a strong global outlook appeared defensible.

Mr. Obstfeld cautioned he isn't predicting a recession. "Probabilities say that could occur but it's far from being our baseline scenario," he said.

He said he foresees the U.S. economy enjoying relatively strong growth next year, "but on a slowing path into 2020."

Mr. Obstfeld is a longtime professor of economics at University of California, Berkeley, where he wrote two of the most-used textbooks in international economics, one with Paul Krugman and the other with Ken Rogoff. He will return to Berkeley in January.

Harvard University's Gita Gopinath will succeed him in January as the IMF's chief economist, the first woman in the role.

Mr. Obstfeld recounted that when he first wrote out problem sets for his textbook with Mr. Rogoff, they didn't write an answer booklet. Instead it was a young graduate student -- Ms. Gopinath -- who was enlisted to solve the problems.

Once again, it will fall to her to solve the problems that Mr. Obstfeld left unanswered, he said.

Mr. Obstfeld highlighted a few of those challenges: How should economies respond to climate change and increasing severe weather events, or the little understood economic risks from a major cyber event? How do central banks re-establish trust?

And he also discussed the likelihood of a not-too-distant future in which China overtakes the U.S. as the world's largest economy.

"As a matter of algebra, if China keeps growing at close to its current rate and the U.S. keeps growing close to its current rate, we can figure out how many years it will take for China to reach the size of the U.S.," he said.

The IMF's October estimates put China's economy at 62% the size of the U.S. last year, but project it will reach 79% by 2023.

"It's really important that this not play out in a conflictual way, because that will be destabilizing for the entire global economy," he said. "It's going to be important to try to entice China into the global framework that countries agree on...in which China changes some of its trading practices and there's also accommodation to some of its legitimate economic goals."

Write to Josh Zumbrun at Josh.Zumbrun@wsj.com

(END) Dow Jones Newswires

December 09, 2018 14:14 ET (19:14 GMT)