IMF 2025: What the World’s Economists Are Watching

At this year’s IMF Annual Meetings, central bankers, economists, and policy experts gathered to assess the forces shaping the global economy. The tone was cautious, the outlook mixed, and debates focused on inflation, trade, and political uncertainty. Here’s what institutional investors need to know.

The most closely watched panels focused on the US, where economic and political uncertainty are increasingly intertwined.

In a discussion hosted by UBS Chief US Economist Jonathan Pingle, Douglas Holtz-Eakin, former Director of the US Congressional Budget Office and Ben Harris, former US Treasury Assistant Secretary for Economic Policy, agreed that while the US is not in recession, the outlook is soft. Growth is expected to slow to 1.7% next year, with the labor market described as soft. Holtz-Eakin warned of a sharper downturn in the second half of the year, citing delayed tariff effects and rising inflation. Harris pointed to the economy’s underlying resilience despite these headwinds – from trade tensions to immigration policy.

Tariffs remain a concern. Holtz-Eakin called them “distortionary,” while Harris suggested some easing could occur but did not forecast a full reversal.

On fiscal policy, the “One Big Beautiful Bill Act” is expected to provide a short-term boost via tax refunds but adds roughly USD 4 trillion to the debt. Persistent deficits could eventually push up interest rates and weigh on living standards.

Monetary policy discussions emphasized that the Fed may maintain a hawkish stance if inflation rises. Concerns about political pressure on the Fed were noted, with questions around future autonomy.

A separate panel examined how political uncertainty influences economic policy. Analysts highlighted rising populism and institutional strain as a source of volatility. Government shutdowns were framed as tactical disputes rather than systemic crises.

While scenarios for upcoming elections were discussed, panelists avoided firm predictions. Instead, they emphasized that fiscal stimulus remains likely, whether through executive action or legislative compromise. Potential interventions in housing markets were mentioned, alongside risks of overheating and persistent inflation.

Fed independence was another focal point. Panelists said that while political attempts to influence policy may occur, most agreed the central bank’s autonomy is expected to hold. However, they pointed out thatdecisions may lean more dovish under increased political pressure.

In a wide-ranging discussion chaired by UBS Global Chief Economist Arend Kapteyn, central bankers from the UK, Eurozone, and US explored the challenges of navigating inflation, trade tensions, and political risk.

Catherine Mann of the Bank of England emphasized domestic drivers of UK inflation, wages, food prices, and regulated costs, and argued for continued policy restraint. Martin Kocher of Austria’s central bank echoed the need for caution, noting that while Eurozone inflation is near target, uncertainty remains high.

James Bullard, former Fed official, highlighted US growth momentum, citing pro-business policies and AI-driven investment, while questioning labor market data reliability. Axel Weber (former UBS Chair) warned that global resilience is tempered by fragility, with risks of European fragmentation and tariff escalation.

Consensus: Central banks must remain flexible and data-dependent, even as political pressures challenge traditional notions of independence.

Emerging markets were a relative bright spot. Massimiliano Castelli, Head of Strategy for Global Sovereign Markets at UBS Asset Management, led a panel featuring voices from IMF, Brazil’s Treasury, and the Kiel Institute.

Research presented by Jason Wu from the IMF showed EMs have strengthened through better fiscal discipline, robust central banks, and deeper local markets. These reforms have reduced volatility during global shocks.

Moritz Schularick, President of the Kiel Institute, noted US tariffs had moderate effects on EM GDP, Mexico being the most exposed, but overall impact was smaller than feared. Capital flows are shifting, with China now the largest official lender to EMs.

Daniel Leal, Secretary of the Brazil National Treasury emphasized structural reforms and a strong domestic investor base, reducing vulnerability to external shocks. Still, risks remain: dollar strength could trigger capital volatility, and smaller EMs must build market infrastructure to reduce reliance on banks.