IMF: A new world order and the implications for Emerging Markets

Pervasive US policy uncertainty dominates Spring meetings

The Spring IMF and WB meetings highlighted a potentially new paradigm, characterised by fewer rules-based US policies, a more fragmented global trade environment, changing geopolitical alignments and shifting economic policy priorities. This high degree of uncertainty led to caution among most experts.

In its World Economic Outlook (WEO), the IMF downgraded its global economic growth outlook; but maintained an increasing EM to developed market (DM) growth differential and expectations for no recession in the US. The impact of tariffs and related uncertainty was seen as the main drivers of lower growth alongside higher inflation in the US, emphasising the risk of future stagflation.

Figure 1: Global growth GDP outlook (IMF WEO projections)

Source: Janus Henderson Investors and Macrobond, as at 22 April 2025. IMF projections shared in the World Economic Outlook, Gross Domestic Product estimates, constant prices. 2024, 2025, 2026, 2027 are forecasts. There is no guarantee that past trends will continue, or forecasts will be realised.  

Here we share some of the key insights we picked up in Washington, highlighting the shifting paradigms and potential opportunities and risks that lie ahead.

US trade policy at the epicentre of global uncertainty

Driven by Trump’s “America First” strategy, a shift towards a new less rules-based global trade order, marked by unilateral tariffs, was largely seen to lead to deglobalisation at worst or regionalisation at best. We do not yet fully know to what extent the US is turning to this policy approach, because many of the recent changes are likely to be challenged in the courts. Clearly, the speed of recent policy changes has outpaced most institutional constraints which allowed the administration to shock the global trade system, the domestic US government apparatus and so on. In the near term, the lack of predictability is likely the biggest headwind for the US economy, the RoW and financial markets.

China was generally seen as well-prepared for the trade tensions, as it has developed a tried-and-tested playbook since the 2018 trade war. It is strategically positioning itself by pursuing diversification in seeking new markets, while simultaneously increasing economic policy stimulus domestically to compensate for lost demand from the US. China is also bolstering domestic consumption and technological self-reliance to strengthen its economic resilience. US trade policy pushing some countries’ trade towards China was considered as a key risk, including in Latin America, where most countries have China as their largest trading partner.

As we have seen with US-China negotiations, surpassing ‘Peak Tariffs’ could provide some positive tailwinds for sentiment so long as there is some progress. The biggest risk for the global economy is that more countries take a retaliatory approach if negotiations do not lead to fair outcomes. Tariffs are expected to be negotiated lower to avoid too much damage, however progress on trade negotiations was generally expected to be bumpy and underwhelming. Financial markets are therefore likely to remain sensitive to downside risks for the global economy until there is more clarity on trade deals.

US policy uncertainty extends beyond trade

Discussions also centred around other US policy challenges such as the deepening fiscal imbalance; political pressures on the US Federal Reserve (Fed); and general unpredictability of policymaking. On the fiscal side, rising deficits and high financing needs has put the US economy in a precarious spot that could limit long-term economic growth and partly undermine ‘US exceptionalism’ whereby US treasuries and the dollar are seen as safe-haven assets.

There was some scepticism about the potential for tariffs to improve the fiscal deficit. There were suggestions that current policies might exacerbate these imbalances or that the amount of revenue from tariffs will do little to fix fiscal challenges (as they will likely underwhelm due to changing trade patterns and collateral damage to the economy). The need for a balanced approach that addresses spending issues rather than solely focusing on revenue generation was underscored. The silver lining was that the bond market has become a visible constraint on policies, giving Secretary of the Treasury Scott Bessent more influence in the administration. Given high financing needs, the behaviour of the bond market is likely to continue to do this and probably contributed to the backtracking of Trump, when it came to pressure on Fed Chair Powell. Constraints on fiscal policy and monetary policy (rising inflation expectations due to tariffs) further aggravated concerns about the ability to counter a deeper economic downturn.

Concerns about US policy has led to a broader discussion about the unwinding of so-called ‘US exceptionalism’. Our takeaway from the meetings was a more nuanced view of that unwinding in the current economic context. The shift towards protectionist policies and trade disputes challenges the traditional perception of US global economic leadership. The US continues to attract global investment due to its technological advancements and financial market depth, but there is more caution about the long-term implications of current policy directions on its exceptional status. Participants from the administration generally showed continued strong support for the dollar as a global reserve currency and did not entertain speculations about a Mar-a-Lago accord[1].

The perspective that global exposure to US financial assets had reached elevated levels added a cyclical element to the recent pressure on US assets compared to the RoW, rather than purely a structural shift at an accelerated pace. This suggested that a short-term stabilisation is likely as global investors rebalance their portfolios, rather than a persistent unwinding of US assets. There was however broad agreement that the RoW is likely to more permanently reprice US risk premia higher due to the unpredictability of the current administration, alongside the surprisingly high degree of executive power and limited willingness (or ability) to constrain from Congress. So while that could transpire as a continued structural unwinding of some of the pillars of ‘US exceptionalism’, the global dominance of the dollar was generally seen as intact for the foreseeable future.

When will it all hit the economy?

The general view was that the adverse economic effects of policy unpredictability are going to be most pronounced in the US, where such policy shocks originate. Nevertheless, while the IMF’s WEO projections see the US avoiding a recession, the downward revision of growth for 2025 was one of the biggest globally. Most private sector projections were far less rosy. As always, predicting the onset of a recession is difficult, but generally the view was that signs of a slowdown should be visible in the coming three to six months due to the impact of tariffs and uncertainty. The immediate impact is clearly already showing up in soft data, but  hard data has been far more resilient, leaving financial markets undecided about the resilience of the US economy.

In contrast, the RoW, particularly regions like Europe and certain EMs, was generally expected to experience a more gradual adjustment. Germany’s indicative proactive fiscal policy measures have changed sentiment for the positive and could buffer against immediate shocks, while EMs could benefit from trade realignment and diversification as well as some Chinese economic policy stimulus. Overall, the global economic outlook remains uncertain, with varied expectations for the timing and severity of slowdowns across different regions. Nevertheless, barring a more significant trade war, the global economy is set for growth at only slightly below historical trends, which provides a healthy balance to the risk scenario in the US.

Much less about EMs than past meetings

Compared to most previous IMF/WB meetings, there was much less focus on EMs. In fact, the sentiment towards EMs was mildly constructive given the broadly mature response from most countries to hostile US trade policy. Most country-level discussions showed that there are plenty of EMs that are sticking to the rules-based approach and the global order of free trade. In countries with IMF programmes progress and programme compliance was generally the case. Coupled with no new and imminent restructurings on the horizon (barring perhaps Bolivia and the Maldives), EMs did shine a bit of light at the Spring Meetings, at least in relative terms.

Nevertheless, EMs are seen as being in a state of flux due to geopolitical tensions and shifting trade dynamics, particularly US-China trade tensions. While EMs face risks from global economic uncertainty and potential slowdowns, they also present opportunities for growth as countries seek to diversify trade relationships and reduce dependence on the US through new partnerships.

EM fundamentals were generally seen as relatively resilient, reflecting that their real economic sensitivity to the US economy has declined significantly in recent decades and that tariffs will create some winners and losers, even though the global economy is expected to suffer from protectionism. There were concerns about the impact on commodity prices and in particular oil prices given the recent visible decline. That does create some clear pressure on energy-producing countries, while benefiting commodity-importing countries. This is where opportunities for active investors can emerge, in selecting the country winners and losers from the new world order.

On a more specific note, the IMF plays a critical role for EMs by providing financial support, policy advice, and technical assistance. The Trump administration has previously expressed a critical and sceptical view of the IMF and other multilateral organisations. So it was somewhat reassuring that the main message from the Spring Meetings was that the current administration is not planning to withdraw from the IMF or WB. However, it appears likely there is a push for the IMF to refocus its mission objectives, be more critical about programme compliance and discerning in awarding programmes (not all countries should get an IMF programme). That would align the IMF slightly better with US objectives.

Summary takeaways

• Lower than usual conviction, especially when it comes to the future US policy path and the economic implications of current policies.
• Recent US policy shifts points to structurally higher risks going forward.
• US policy uncertainty is likely to hit the hardest at home and many discussions pointed to the risk of a US recession in 2025 weighing on the global economy to a lesser extent.
• Trade negotiations could take longer than expected because of the lack of clarity on the US administration’s objectives and distrust of a potential deal being upheld on the US side. Short-term positive headlines may still be announced but real trade deals will take longer.
• US is losing true allies and there is a strong need for Europe to step up geopolitically on behalf of the RoW.
• De-dollarisation is likely exaggerated, but a tactical rebalancing of global portfolios is taking place amid a continued slow and gradual decline in the use of the dollar as a reserve currency.
• Less bearish view on EMs emanates from the weakness of the dollar which has given more space for EM policies to respond countercyclically.
• Overall EM investors were more sanguine and focused on country-specific opportunities.

Footnotes

[1] ‘The Mar-a-Lago Accord’ is a plan to recreate the 1985 ‘Plaza Accord’, where France, West Germany, Japan, United Kingdom and United States jointly agreed to weaken the US dollar relative to their own currencies through intervening in the currency markets. It means partnership between other key economies to pump up their own currencies and help devalue the dollar and thus correct the US trade deficit.