What was on the mind of world finance leaders who met last week at the IMF/World Bank Spring Meetings in 6 key points?

1. The near-term outlook is highly uncertain, but less favorable than before the war even in the best-case scenario

Acknowledging the uncertainties surrounding the evolution of the Gulf war and the accompanying energy shock, the IMF gave up on offering a baseline forecast and instead offered three scenarios – “reference”, mildly adverse and recessionary – all showing slower growth, higher inflation and a heavier hit on net energy importers and poorer countries. While US officials downplayed the impact of the war, most participants were concerned but not overly so. However, Saudi Finance Minister Al Jadaan warned that a real de escalation is still needed before any “base case” can be assumed and that normalisation of energy flows will take more time than generally assumed. 

2. Policymakers should respond with prudence to the shock

Noting elevated debt to GDP ratios in most countries, both the IMF and central banks called for any fiscal support to be targeted, temporary and tailored. This has mostly been the case so far, unlike in 2022. As to monetary policy, central banks are taking a firm wait-and-see posture, pledging to be both vigilant (to avoid letting inflation get out of hand like in 2022) and patient (to avoid tightening prematurely and excessively).

3. We are in a new geopolitical paradigm

The war heralds a lasting rise in geopolitical risk and a return to the rule of  “hard power”. Nations that have relied on U.S. security guarantees are going to have to build their own defence capabilities.  China’s global position was generally seen as strengthened by the war, and the current U.S. administration as unlikely to confront it directly.

5.  Economic and market resilience have been remarkable, but may be reaching limits

So far, abundant liquidity, large fiscal deficits and strategic investment drives have kept growth solid and labour markets healthy. Stock markets remain buoyant, driven largely by a few tech firms, while sovereign bond markets have only begun to price fiscal risks. But financial conditions may tighten as central banks become more hawkish and risk aversion could rise from current low levels.

6.  The global economy and markets are being rewired. 

• Supply chain resilience is emerging as a top priority-- to shield them from any disturbance—geopolitical, cyber, pandemic or climate related. Expect governments and firms to pour capital into diversifying suppliers, stockpiling essential inputs, and fostering regional “champions” in strategic sectors.
• Artificial intelligence (AI) continues to dominate conversations. While most see AI as a major productivity driver that can generate huge revenues and new jobs, there is equal concern about its potential to disrupt labour markets and create systemic financial risks. Economies that sit at the centre of the AI production chain—especially the United States and South Korea—are becoming increasingly dependent on this single engine of growth, and concentration risks are growing across stock and credit markets.
• Dedollarisation remains a misnomer but dollar-diversification is ongoing. Gulf states that see lower oil export revenues because of the war will recycle more capital domestically to rebuild infrastructure and bolster defence, reducing outward investment. Meanwhile, global investors, wary of over reliance on U.S. assets, are looking for alternatives. Europe, emerging markets, and within this group—Latin America are gaining appeal in this context. 
• Digital finance is coming of age fast. The focus has moved beyond the hype over stablecoins to a broader focus on tokenised finance. If traditional financial institutions collaborate to tokenise their existing products and ensure interoperability, the overall ecosystem will become more efficient and the use case for stablecoins will stay limited. Many would view this as a good outcome.