IMF Spring Meetings: Coming to terms with multiple regime changes

Despite the war and energy shocks unfolding in parallel to the Meetings, finance officials, central bankers and other delegates took the situation with a poise that contrasted with the sense of shock that followed Liberation Day. Unable to predict with any degree of confidence how the war would evolve, and hence how large the economic damage would be, delegates focused more than usual on what lies beyond the near-term outlook: regime changes in geopolitics, economics and markets; how to explain and preserve recent resilience; and the multiple ongoing re-wirings of the fabric of the global economy and financial markets. Here are some personal key takeaways.

Realism

While interactions at the IMF/WB Meetings are always, to some degree, a communication exercise, participants, this time, appeared remarkably lucid and candid about the scale of the challenges faced:

No baseline

Rather than providing its usual baseline year-ahead forecasts, the IMF acknowledged that with the future path of the ongoing war in the Middle East still highly uncertain, and hence too the size and length of the energy shock, the best that could be done was to provide different scenarios: a benign “reference” one, a mildly adverse one and recessionary one. In all scenarios, growth is revised lower and inflation higher, with net energy importers and poorer countries hit disproportionately. So far, so consensus. But Saudi Finance Minister Al-Jadaan, who chairs the International Monetary and Financial Committee, struck many by his words of warning that “the hope is that we will see a serious, credible deescalation. And until that happens, I do not think we are on whatever base scenario.”

Prudent policy responses

Against the backdrop of ever-rising public debts, the IMF and central banks cautioned fiscal authorities that any support to help handle the energy shock should be targeted, temporary and tailored (i.e., small). For central bankers, prudence meant adopting a firm wait-and-see stance, promising both vigilance and, at least in developed markets, patience. They vowed not to let inflation get out of hand again, but equally not to tighten policy unless and until they saw evidence of second round effects (e.g., in inflation expectations, wages, or prices beyond energy). Key to this posture was high uncertainty not just about the size and length of the energy shock, but also about households and firms’ reaction to it in the current macroeconomic environment, very different from that of 2022.

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