Last week the Spring Meetings of the IMF and World Bank took place in Washington DC; they opened shortly after the two-week truce between the United States and Iran was announced on 8 April, halting forty days of US–Israeli attacks that had pushed the region to the brink of a wider war, and while they were under way the Israel–Lebanon cessation of hostilities also materialised, for an initial ten-day period, as a gesture of goodwill intended to enable good-faith negotiations towards a permanent security and peace agreement. Towards the end of the meetings the Strait of Hormuz was also partially reopened. This succession of good news, combined with the expectation of a more permanent deal between Washington and Tehran, propelled risky asset prices to new highs, completely reversing the losses sustained since the onset of the US–Israeli attack on Iran on 28 February.

Thus the market was displaying remarkable resilience — indeed, outright optimism — at the very moment when policymakers from the IMF, the World Bank, other multilateral organisations, central banks and finance ministries were uniformly counselling prudence and caution. While a short-term respite was certainly welcome, the official chorus was warning market participants that a more prolonged conflict, or the more lasting economic consequences stemming from higher oil, gas and fertiliser prices, along with the damage inflicted on Middle Eastern energy infrastructure, had by no means been priced in.

The IMF itself set the tone: assuming that the conflict remains limited in duration and scope, global growth is projected to slow to 3.1 percent in 2026 and 3.2 percent in 2027, with global headline inflation projected to rise modestly in 2026 before resuming its decline in 2027, and with downside risks dominating the outlook. More starkly still, if oil prices on average hover around $100 a barrel, as they have in recent weeks, the IMF forecasts global growth to fall to 2.5 percent this year, and in the worst-case scenario — in which supply disruptions persist into next year — global growth is projected to fall to around 2 percent, which the Fund itself characterises as “a close call for a global recession”.

So the Spring Meetings laid bare a massive disconnect between what policymakers were saying and what the market was doing, leaving both sides extremely perplexed. How, therefore, can one reconcile these divergent readings of the same reality? One plausible explanation is the following. Markets may simply be focused on short-term developments; and clearly, signs are building up that the conflict with Iran is edging closer to some form of standstill. This would account for the immediate optimism, not least because the policy implication is that central banks will not have to raise interest rates in the near term and can instead concentrate on supporting growth, potentially opening space for rate cuts in the coming weeks and months — an outcome that would be unambiguously supportive of risky asset prices.

Policymakers, on the other hand, are focused on longer-horizon developments; and they are probably right to highlight that markets are likely underestimating a substantial residual risk, both geopolitically and in its economic implications. Thus markets may prove correct in the immediate future, while policymakers may prove correct in the medium to long run. Clearly things may evolve in a quite different direction: bad news may emerge on a daily basis — such as Trump’s declaration that the US naval blockade on Iran will continue even after Tehran reopened the Strait of Hormuz, or an Iranian retaliation closing the Strait once again — and such developments could trigger sudden market reversals. Equally, policymakers may yet be surprised on the upside by the resilience of the global economy to these shocks.

One further element must be factored in: the United States is on an expansionary campaign — the Phase 1 of the “Don-Roe Doctrine” discussed in our recent publications — and new military operations may materialise sooner than currently anticipated. The “Donroe Doctrine” has already led to the toppling of the government in Venezuela and a framework deal to bolster the US presence in Greenland, and President Trump has in recent days declared that Cuba is “ready to fall” and that the Colombian president’s days in office are numbered. First and foremost, therefore, operations in Cuba, Colombia and, most likely, again in Greenland may follow. If this scenario were to materialise, further volatility should be expected in coming weeks. Equally, the economic effects of the war in Iran have not yet been fully felt; but as soon as the extent of the damage is properly estimated, a reassessment of the strength of the global economy will be warranted, with all the obvious implications for asset prices.