By Kemi Osukoya
GLOBAL ECONOMY | MARKETS
If The Art of War were rewritten for a world of inflation prints and oil shocks, its opening line might read less like a meditation on battle and more like a briefing note from the International Monetary Fund: do not rush blindly into the fog; assess the terrain, conserve your strength, and strike only when the moment demands it.
That, in essence, is the Fund’s latest playbook for a global economy caught between war and fragility—with three words now echoing across the corridors of this week’s Spring Meetings: wait, target, adapt.
The timing is unforgiving. Only months ago, the narrative was one of cautious optimism. “Despite major trade disruptions and policy uncertainty, last year ended on an upbeat note,” said Pierre-Olivier Gourinchas, IMF Chief Economist in his opening remarks to reporters during the launch of the Fund’s latest World Economic Outlook, pointing to a private sector that had quietly recalibrated. “The private sector adapted to a changing business environment, helped by lower-than-announced U.S. tariffs, fiscal support in some countries, favorable financial conditions, and a tech boom.”
That fragile momentum, just strong enough to tempt an upward revision, has since been derailed. “The war in the Middle East has halted this momentum,” he warned. The closure of the Strait of Hormuz and damage to critical energy infrastructure have pushed the global economy back into a familiar, uncomfortable script: energy shock, inflation pressure, financial tightening.
The mechanics are textbook, even if the scale is not. “Higher commodity prices are a textbook negative supply shock: raising prices and costs, disrupting supply chains, and eroding purchasing power,” Gourinchas said. But what follows is less predictable. Firms and workers may try to claw back losses, “risking wage-price spirals, especially where inflation expectations are poorly anchored” while markets tighten in anticipation: “lower asset valuations, higher risk premia, capital flight, dollar appreciation, dampening demand.”
From here, the IMF maps out three possible paths. The baseline—already a downgrade—assumes a contained conflict: “Global growth falls to 3.1 percent this year and headline inflation rises to 4.4 percent.” The adverse scenario is more punishing: “Growth falls to 2.5 percent and inflation rises to 5.4 percent.” And then there is the severe case, where disruption lingers: “Global growth falls to 2 percent this year and next, while inflation exceeds 6 percent.”
“Downside risks are clearly very elevated.”
What makes this episode more precarious than 2022 is not just the shock itself, but the scars it left behind. Inflation, once dismissed as transitory, has become psychologically embedded. “Higher prices raised cost of living concerns and made inflation expectations potentially more sensitive to new price increases,” he noted. At the same time, the policy trade-offs have worsened: “Our analysis shows the supply curve is now much flatter, making any central bank-engineered disinflation more costly in terms of unemployment.”
In other words, the margin for error has narrowed.
So what does strategy look like in this environment? Not the blunt force of rate hikes or sweeping fiscal largesse, but something closer to restraint.
For central banks, the advice is almost counterintuitive: patience. “This is a negative supply shock, and no central bank can influence global energy prices on its own,” Gourinchas said. Markets have already tightened in anticipation. The risk now is overreaction. “Provided inflation expectations remain well anchored, central banks can afford to wait and watch for now.”
But this is not passivity. It is conditional restraint. Policymakers must remain alert, “attentive to risks and communicate clearly their readiness to act decisively to maintain price stability.” And, crucially, resist the temptation to defend currencies at all costs: “In most cases, exchange rates should be allowed to adjust, allowing central banks to focus on their mandates.”
Fiscal policy faces an even harsher reality. The era of expansive support is over, not by choice but by arithmetic. “With rising public debt trajectory, fiscal space is much thinner than before,” he said. The politically easy options, price caps, subsidies, are dismissed with unusual bluntness: “They distort prices… are often poorly designed, hard to unwind, and extremely costly. Most countries don’t have that luxury anymore.”
What remains is precision. “Targeted and temporary measures” for the most vulnerable, deployed sparingly and aligned with “medium-term plans to rebuild fiscal buffers.” Anything broader risks stoking the very inflation policymakers are trying to contain.
And yet, as in any conflict, strategy must be flexible. Should conditions deteriorate sharply “if financial conditions tighten sharply… and global activity deteriorates markedly”—the playbook flips. Policymakers must be ready “to pivot to support the economy and safeguard the financial system, alongside appropriate financial and liquidity policies.”
This is the paradox at the heart of the IMF’s message: discipline in calm, agility in crisis.
For Africa, the margins are even tighter—and the stakes arguably higher. The region entered 2025 on relatively solid footing, but the external environment has shifted abruptly. As Deniz Igan, Head of the IMF Research department’s World Economic Studies noted, resilient global growth and strong non-oil commodity prices had “helped a lot of countries in the region.” That tailwind has now reversed.
The result is a familiar squeeze. The Fund points to weaker growth and rising inflation across sub-Saharan Africa, “reflecting high oil and fertilizer prices… and rising borrowing costs.” For many economies—particularly energy importers—the shock is compounded by structural fragilities: weaker currencies, tighter financial conditions, and declining external support. Bilateral aid cuts, the IMF notes, are running “from 16 to 28 percent… and we project that trend to continue.”
The policy prescription is less about stimulus and more about discipline. Governments will have to operate within sharply constrained fiscal space. “Whatever measures they would need to deploy… will have to be very, very narrowly targeted and very much within their budgetary envelope,” IMF officials stressed.
In practice, that means prioritizing the most vulnerable—households exposed to food and fuel price spikes—while resisting broad subsidies that strain already fragile balance sheets. On the monetary side, credibility becomes the anchor. Tight, data-dependent policy—”watching very carefully both exchange rate movements and inflation expectations”—is essential, particularly for countries like Nigeria, where inflation ambitions are colliding with imported price pressures.
The broader challenge is one of asymmetry. Africa is among the least responsible for global shocks, yet among the most exposed to their transmission—through energy, food, and capital flows. The IMF’s underlying message is clear: resilience will depend not on expansive intervention, but on policy credibility, targeted protection, and the ability to navigate external volatility with limited buffers.
Beyond the immediate firefight lies a longer war—one not of oil supply, but of structural transformation. “It should also spur faster adoption of renewable energy, which can strengthen resilience to energy shocks, improve energy security, and support the climate transition,” Gourinchas said.
Artificial intelligence, meanwhile, is the next frontier of productivity, promising, but disruptive. “Advances in artificial intelligence promise large productivity gains but the transition may be bumpy.” Markets, as ever, may be ahead of fundamentals: “new jobs will emerge, but some existing ones will also disappear.” The policy challenge is to manage the shift—”promote adoption while easing the labor market transition.”
Hovering over all of this is a deeper shift: the slow reordering of the global system itself. “Fraying alliances, new conflicts, and waves of inward-looking policies… undermine cooperation and growth,” he warned. Yet it stops short of fatalism. A multipolar world need not be fragmented.
The risk is not change—it is disorder.
“With the right policies, including a swift cessation of hostilities and reopening of the Strait of Hormuz, the damage can remain limited,” Gourinchas added optimistically.
Sun Tzu would have recognized the logic. In uncertain terrain, victory rarely comes from force alone. It comes from discipline, timing, and the ability to adapt faster than the shock itself.
