Crises Are the New Normal. Here’s What the Global Economy Really Faces

Supply Shocks – As One Fades, Another Appears
Energy Shock Triggered by the Middle East Conflict
The Era of Continuous Shocks
On the World Map, Europe Is Seen as a Structurally Weaker, Slower‑Deciding Economy
Current Crises May Strengthen China’s Position
Recommendations for Central Banks
Artificial Intelligence as a Key Opportunity for the Economy Amid Numerous Risks

During both events the image of a world entering an era of lasting, overlapping supply shocks—driven by geopolitics, climate change, demographic shifts, and energy market volatility—dominated. In such a context, the goal of economic policy shifts from smoothing the business cycle to managing permanent uncertainty.
The most pressing current threat is the energy shock stemming from the Middle East conflict, which is stagflationary, hits logistics, fertilizer and food production, and supply chains, while potentially accelerating the energy transition and affecting geopolitical balance.
In an environment of continuous crises, the focus moves away from maximizing efficiency and competitiveness toward resilience: physical and economic security, diversification of energy, raw material, and trade partnership sources. At the same time, caution was raised about excessive “resource nationalism,” which could deepen world fragmentation.
During the meetings Europe was critically assessed as a structurally weaker economy, too slow in decision‑making, burdened by high energy prices, regulatory barriers, and a lack of innovation. It was emphasized that without accelerating reforms and building European, not national, champions, the EU will lose competition to the US and China, even in AI.
At the same time, it was pointed out that current crises could strengthen China’s position thanks to its advantages in energy prices and availability and access to critical raw materials. US‑China relations were deemed one of the main factors shaping the future economic order, with Europe remaining between these poles.
Regarding central banks, it was stressed that with stagflationary shocks there is no simple response scheme: flexibility, clear communication, and scenario‑specific reaction frameworks become key, with greater coordination of monetary and fiscal policy.
Artificial intelligence was presented as a major opportunity. It was noted that it already stimulates investment, though its impact on productivity remains limited for now. Implementing AI requires deep organizational changes and a proper governance system. Trust, responsibility, AI‑washing, and regulatory roles—especially in Europe—were also discussed.

Below we present a subjective selection of 7 key topics discussed during speeches and panels we followed during the IMF and World Bank spring meetings and the IIF conference.

Supply Shocks – As One Fades, Another Appears

• Confidence that shocks are anomalies is weakening – their frequent occurrence becomes a new, lasting phenomenon we will permanently confront.

• Sources of further shocks may include escalating geopolitical fragmentation, climate change, demographic shifts, and additional disturbances in energy markets.

• Consequently, shaping economic policy is no longer about managing business cycles but operating under continuous uncertainty.

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Energy Shock Triggered by the Middle East Conflict

• Its default impact on the economy is stagflationary – it simultaneously slows growth and fuels inflation.

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• Strong emphasis was placed on the need for temporary, targeted anti‑crisis measures (aimed at the weakest entities) – both because many countries already have limited fiscal space and to avoid fully eliminating downward demand adjustments that would lower commodity prices.

• The shock affects not only oil prices – it also impacts supply chains, logistics, and the price and availability of fertilizers (in a negative scenario, some countries may face food supply problems).

• Like any crisis, this shock can also produce positive effects – organically accelerating transport electrification and the energy transition. It was highlighted that 1970s oil shocks spurred strong nuclear energy development.

• Among Middle Eastern representatives and energy market experts, the belief prevailed that the world (especially relatively calm financial markets) underestimates the scale of risk generated by the conflict and the intensity of its negative implications for the global economy.

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The Era of Continuous Shocks

If we are in an era of continuous shocks, the priority shifts from improving efficiency/competitiveness to resilience understood as physical and economic security, diversification, and economic stability.

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• Recent conflicts and the pandemic showed that supply chains and their influence can be treated as a weapon – a way to strike other economies. In this context, diversification of energy sources, raw‑material partnerships, new trade agreements, and reducing reliance on single suppliers were highlighted as key.

• At the same time, warnings were issued against “resource nationalism” – a situation where strong states rapidly expand strategic reserves at the expense of weaker economies, further hitting globalization and limiting foreign trade.

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On the World Map, Europe Is Seen as a Structurally Weaker, Slower‑Deciding Economy

• Lower economic growth in Europe is non‑cyclical and structural; challenges include high energy prices, underinvestment in innovation, regulatory barriers, slow reform implementation, and incomplete realization of a single market.

• The prevailing belief is that the diagnosis of Europe’s weaknesses has long been known, solutions proposed, but implementation is sluggish. The main obstacle is that EU‑level support is fragmented by individual member states’ interests.

• In this context, it was argued that the goal for EU states should be building European champions, not national ones – only the former can compete globally.

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• Also regarding AI, Europe is negatively distinguished, partly due to regulatory factors and limited access to computing power.

• Without accelerating reforms, Europe will lose to the US technological advantage and China’s industrial‑resource advantage.

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Current Crises May Strengthen China’s Position

• Mainly through China’s advantage in energy prices, diversification of sources, and access to critical raw materials.

• Three aspects that will strengthen China’s position in the near future are: (1) access to rare earth metals, (2) significant industrial subsidies, and (3) use of “unfair game rules.”

• It was pointed out that the way China‑US relations unfold will significantly determine the global order. One region caught between the US and China, whose future heavily depends on the final shape of China‑US relations, is Europe.

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Recommendations for Central Banks

• With stagflationary shocks there is no simple action plan – tightening can overly stifle economic activity, while late rate hikes risk anchoring inflation expectations and spreading the initial price impulse across the economy.

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• The foundation must be effective communication policy, where the bank presents its reaction function for specific scenarios. Forward guidance is forgotten.

• Calls for coordination of monetary and fiscal policy arise, and for some, the conservatively understood independence of monetary policy is seen as a mistake in responding to past shocks.

• Statements from ECB and Fed bankers at the conferences did not suggest they saw a need for rapid rate hikes.

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Artificial Intelligence as a Key Opportunity for the Economy Amid Numerous Risks

• The narrative dominates that AI already drives investment, e.g., in infrastructure, data centers, but its positive effects, especially in productivity improvement, are not yet obvious or significant. Some participants (including IMF chief K. Georgijewa) still link AI to high hopes for productivity gains.

• The Middle East conflict could become a factor slowing AI development due to its high energy consumption and the region’s historical data‑center placement policy.

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• It was emphasized that while AI tools are emerging quickly, the structural changes needed within firms to effectively implement them take much longer and require comprehensive planning. As a result, most firms currently use AI for simple, auxiliary tasks, not as a full system.

• The ultimate impact of AI on productivity will depend not only on the technology itself but also on local regulations (especially relevant in the European context).

• Among discussed aspects was trust – how to build it in the AI age, how to counter attempts to shift responsibility to AI, e.g., in risk management or investment decisions. Attention was also drawn to the business value of human‑client relationships, suggesting that using AI for validation and support of human‑human conversations may be preferable to handing client relationships “to AI.”

• The term AI‑washing also appeared – many institutions talk about AI more broadly and boldly than its actual quality and scale of deployment warrant.

• AI and AI‑based tools require a mature governance model: proper data feeding, regular model testing procedures, error and bias control, and ensuring explainability and interpretability. Few firms have such comprehensive solutions yet.

• The AI revolution increases world fragmentation – developing countries more often adopt Chinese models instead of Western ones. The media recently highlighted a model whose owner selectively restricted access for certain countries and entities.

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• Financial industry representatives highlighted problems assessing the profitability of AI investments, which are characterized by variable ROI.

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FXMAG Team

FXMAG’s editorial team creates high-quality content on financial markets, investing, and the global economy. We provide timely analysis and clear insights to help our audience navigate complex market dynamics.