The October 2025 IMF Fall Meetings in Washington, D.C., reflected a constructive but cautious tone as risk assets extended the rally that began after the April meetings. Since the April troughs, credit spreads have compressed meaningfully, with US investment-grade credit tighter by about 30 basis points (bps), high-yield tighter by about 80 bps and emerging markets (EM) tighter by about 60 bps. Meanwhile, equities have been equally strong, with EM up about 30% year-to-date (YTD) versus the S&P 500 Index’s increase of about 14.5%. The prevailing theme was “better than feared, worse than needed,” and discussion returned to fiscal implications as the primary concern.
Three Key Themes
1. AI Investment Cycle Dominates the Economic Narrative: The “AI spending trumps tariffs” theme emerged as a central discussion point, with AI‑linked companies representing a large share of the S&P 500 and, by some estimates, driving a disproportionate share of earnings and capex growth. This technological diffusion is supporting productivity gains and providing economic ballast, with the “One Big Beautiful Bill” Act helping to offset concerns from tariffs. JPMorgan’s announcement of a nearly $1.5 trillion commitment over the next decade underscores the scale of this investment cycle.
2. Fiscal Dominance and Debt Sustainability Concerns: Investor focus has shifted from tariffs to fiscal implications, debt dynamics and term premia. The meetings emphasized that it’s back to mostly fiscal business for the IMF, reflecting concerns about long‑term fiscal sustainability. Countries like Turkey exemplify these challenges, with its government’s Medium‑Term Program outlining a phased approach focused on avoiding tail risks, addressing imbalances and achieving price stability through structural transformation.
3. Monetary Policy Divergence and Market Dynamics: Central banks are navigating different policy paths, with the Federal Reserve (Fed) easing amid labor‑market concerns while inflation remains sticky. This has created complex dynamics in which EM economies are experiencing significant inflows (approximately $13 billion YTD into local currency bonds, per industry trackers), representing the strongest showing since the 2013 taper‑tantrum period. The dollar faces a modestly bearish outlook driven by downside growth risks and Fed easing, though it remains supported by AI‑driven economic strength.
Regional Perspectives
Advanced Economies: The meetings featured extensive discussion of US economic dynamics, with Jamie Dimon highlighting both opportunities and risks. While he was positive regarding AI investment and potential deregulation, concerns remain about geopolitical tensions and fiscal deficits. The US economy shows resilience supported by AI‑related capex, though labor‑market softening and sticky inflation present challenges.
Asia: China remains on track to meet its growth target, which should anchor EM growth. Asian countries broadly exhibit strong fundamentals, low inflation and low nominal rates. Many have the capacity to stimulate their respective economies if necessary. In Indonesia, we expect the government to increase spending paired with coordinated monetary easing.
Emerging European countries are highly dependent on EU transfers, and the growth outlook hinges on potential EU‑member spending on infrastructure and defense. Disinflation remains a theme but will be highly dependent on the outcome of the conflict between Russia and Ukraine.
Latin America has experienced slowing growth and sticky inflation. Domestic politics was a major theme given elections in Chile this year and we expect this to continue with elections in Peru, Colombia and Brazil next year. The region has also been a battleground for influence between the US and China. Argentina stands out as undergoing significant transformation under its stabilization program. The country has achieved relative price adjustments and moved toward a monetary aggregate targeting framework. Mid-term elections have resulted in a win for Milei’s administration that now has a mandate to push forward on further structural reforms.
MENA/Sub‑Saharan Africa: The Middle East and North Africa (MENA) region shows mixed but generally improving dynamics. We continue to see opportunities in credit with potential for ratings upgrades on the continent. Morocco was upgraded to BBB− by S&P in September, joining Botswana and Mauritius as the only investment-grade‑rated countries in Africa. The IMF remains engaged with several countries currently in programs or seeking programs. Middle Eastern countries have also stepped in as bilateral investors, providing key external support for countries like Egypt and Kenya. We came away with a constructive outlook following our meetings on Nigeria, Côte d’Ivoire, Ghana, Egypt and South Africa.
Concluding Remarks
The October 2025 IMF Fall Meetings revealed a global economy in transition, with strong market performance masking underlying structural challenges. The shift from trade‑war concerns to fiscal dominance reflects a maturing understanding of long‑term economic risks. While EM countries have attracted significant inflows and demonstrated resilience, the sustainability of current dynamics depends on continued progress in structural reforms and debt management. The AI investment cycle provides crucial support to global growth, but geopolitical tensions and fiscal sustainability concerns require careful navigation. Countries successfully implementing IMF programs, like Ghana and Côte d’Ivoire, demonstrate the potential for positive outcomes, while cases like those of Argentina and Turkey highlight both the challenges and opportunities in economic transformation during politically sensitive periods.
We remain constructive on high yield sovereigns, selective local rate duration and EM for FX versus the US dollar. Frontier market credits continue to be a core overweight in our strategies, and we have added duration in Brazil, Mexico, South Africa and select Sub Saharan African local markets. While we think the broad US dollar move versus G5 currency pairs has largely played out—and is likely to remain rangebound into year end 2025—we still see scope for select EM currencies to appreciate, supported by comparatively high real carry, ongoing disinflation and improving fiscal anchors. Our positioning will remain disciplined given the potential for event and liquidity driven volatility.