Against the backdrop of one of the hottest April days on record in the US capital, institutional investors were in a very positive mood at the International Monetary Fund-World Bank spring meetings. This is partly due to the resilience of economies and companies, which have coped better than expected with the disruption caused by the succession of new geo-economic crises triggered by the Donald Trump administration.
In response to these upheavals, the IMF, the European Central Bank and other institutions have shifted their focus from traditional point forecasts of economic development to scenario analysis. According to IMF estimates, even in a negative scenario involving persistent supply bottlenecks in the energy markets, as well as a global inflation rate of 6%, the global economy would still grow by 2% this year and next – a recession is therefore not on the horizon. In addition, concerns regarding private credit have eased somewhat: the IMF analysed this asset class in detail in the latest edition of its Global Financial Stability Report and found limited systemic risks.
Another reason for the almost euphoric mood among private sector representatives was the hope that the Trump administration would fail to fulfil its grandiose threats. Just a few days before the IMF meeting, the US president threatened to destroy Iran’s civilisation; yet shortly afterwards, he welcomed negotiations with the Tehran regime. As Financial Times journalist Robert Armstrong put it, ‘Trump always chickens out’. His policies are also becoming increasingly unpopular with his own supporters, and the Republican party is set to lose its majority in the House of Representatives in the midterm elections in November 2026, possibly even losing its majority in the Senate too.
Participants at the IMF meetings, shell-shocked by Trump’s return last year, have regained their confidence and were openly criticising the US administration. At the same time, many US government representatives are once again justifying their positions with reference to economic theory instead of lambasting the ‘deep state’ – a clear sign that they are preparing for life after Trump.
Dissonance, discrepancy, disconnect
The finance ministers and central bank representatives in Washington, as well as most independent observers, did not share the private sector’s optimistic view. The buzzwords were ‘dissonance’, as David Lubin of Chatham House put it, ‘discrepancy’ or ‘disconnect’. In my view, this has to do with differing perspectives. Central banks are concerned about inflation, which is likely to remain above their target for some time. However, this hardly bothers investors, who are focused on the improving outlook for the equity and bond markets as the risk of a full-scale war between the US and Iran recedes.
In any case, central banks are opting for prudence. 2026 will mark the sixth consecutive year that the US has missed the Federal Reserve’s inflation target. As fuel prices are soaring due to the war on Iran, no one in Washington – apart from one die-hard Trump supporter – was calling for interest rate cuts. Former central bankers argued that the Federal Reserve Chair-designate, Kevin Warsh, would not secure a majority in the Federal Open Market Committee for monetary easing.
Conversely, ECB representatives have indicated that a key interest rate hike in Europe is unlikely at the next meeting on 30 April. According to the president of a major European central bank, monetary policy should be ‘vigilant but patient’, given the uncertain outlook. Before raising its policy rate, the ECB requires evidence that supply bottlenecks in commodities markets will persist.
Fiscal policy is also taking a cautious approach. In Washington, the consensus rejected calls for price caps or subsidies on electricity and fossil fuels, as these are considered inefficient and costly. Muting the price signal would not resolve the shortage, but increase demand for scarce fossil fuels, which would be to the detriment of less affluent countries, such as those in Southeast Asia. Government intervention in energy markets should therefore be temporary, targeted and transformative, as IMF Chief Economist Pierre-Olivier Gourinchas put it – it should help reduce dependence on fossil fuels.
China expert Jörg Wuttke reported that the People’s Republic is already saving 1.2m barrels of crude oil imports per day by having shifted to electric vehicles. A Chinese Embassy economic attaché left no doubt that China will continue to push ahead with the expansion of renewable energies for reasons of national security.
More optimism about Europe
Meanwhile, the economic outlook for Europe was assessed as significantly more optimistic than in autumn 2025. ECB Board Member Isabel Schnabel delivered a widely noted speech at a Peterson Institute of International Economics conference, highlighting financial and price stability in the euro area. Thanks to effective regulation and supervision, the ECB was able to raise its key interest rates by 4.5 percentage points between 2022 and 2023 without triggering a banking crisis. Unlike in the US, inflation is currently close to the central bank’s target.
Schnabel described the challenges facing Europe as opportunities: introducing the digital euro could reduce dependence on foreign payment service providers, and European companies could become pioneers in applying artificial intelligence. Most market participants shared this cautious optimism: while Europe’s performance may be lacklustre, the currency area offers institutional and economic stability. Consequently, many investors are betting on a stronger euro or recommending ‘long Bunds, short Treasuries’.
Investors are turning to emerging markets
Alongside relief over geopolitical developments, the focus of this year’s IMF spring meetings was the improved outlook for emerging markets. It seems that the US government is moving away from its aggressive policy of containing China, shifting from ‘strategic competition’ to ‘strategic accommodation’. The view that China has gained the upper hand in the trade war seems to be gaining ground – tariffs are deeply unpopular in the US, and export restrictions on rare earths provide China with escalation dominance. Trump is planning a trip to Beijing, where he reportedly intends to ‘hug’ Chinese President Xi Jinping.
After years of absence, US investors are thus turning their attention back to the Chinese stock market. The focus is on companies and sectors whose products contribute to the development goals set out in the 15th Five-Year Plan, published by Beijing in March 2026. The renminbi may appreciate further, driven by China’s substantial current account surplus and capital inflows.
Many other emerging markets also appear attractive. One such market is Nigeria, as my meeting with representatives from the central bank and the Ministry of Finance revealed. The government’s debt stands at around 50% of GDP, the country is running a current account surplus of around 7% of GDP and it is building up foreign exchange reserves. Structural reforms implemented in recent years are taking effect and could put Africa’s largest economy on a sustainable development path.
The Argentinian delegation also made a good impression: foreign direct investment is rising, the central bank is building up foreign exchange reserves and the government is planning a return to the capital markets. The Brazilian real, like many Eastern European currencies, is under appreciation pressure. Of the countries bordering the Persian Gulf, Saudi Arabia appears to have the best prospects as oil export revenues are rising, while Bahrain and the United Arab Emirates are a cause for concern as their service-orientated business models are under pressure due to the war on Iran.
Problems persist despite optimism
The prevailing optimism should not obscure the fact that many problems remain unresolved. The Trump administration is still struggling to find a face-saving offramp from its war against Iran, and it could next set its sights on Cuba. Trump’s threat to invade Greenland – the territory of a European Union member state – is unforgivable to most European participants.
The same applies to the US administration’s attempts to weaken the EU by influencing elections and providing financial support to far-right parties. Heated exchanges during private meetings suggest that the US has damaged its relationship with the EU beyond repair, and the future of Nato seems uncertain.
Finally, the unresolved climate crisis remains, the harbingers of which were the exceptionally hot days in Washington. Nevertheless, the short-term outlook for capital markets remains positive.
Christian Kopf is Head of Fixed Income and Currencies at Union Investment Group.
Image credit: Said Hlimi, World Bank
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