The forecast for the global economy has become much more uncertain and unpredictable in recent months, according to the Bank for International Settlements’ most recent annual economic report. BIS analysts said trade disruptions are “roiling” financial markets and could “reshape the global economic landscape.”
“Until early 2025, the global economy appeared firmly on track for a soft landing. In most countries, inflation was already at or converging to targets, and global growth in 2024, at just over 3%, matched the pace of the previous year,” analysts wrote. “But the outlook for the global economy quickly darkened in the second quarter of 2025 following the announcements of larger than expected broad-based U.S. tariffs. Adding to the uncertainty were growing doubts about the return of fiscal policy to a prudent path, and questions about the commitment to central bank independence.”
Vulnerabilities in the global economy cited in the report include moves toward greater economic fragmentation and protectionism that “exacerbate the decades-long decline in economic and productivity growth across many economies”; the effects from the post-pandemic inflation surge, which could leave a lasting imprint on household inflation expectations; and high and rising public debt, increasing financial systems’ vulnerability to interest rate rises while reducing governments’ ability to respond to new challenges.
While central banks focus on price stability, governments must support structural reforms and manage public finances sustainably to foster growth to meet future needs, BIS analysts said. They also noted that the increased role of nonbanks, including a shift toward financing public debt, “brings stronger international transmission of financial conditions and also financial stability risks.”
Removing barriers to trade would help offset the damage from trade conflicts, according to the report. “Fiscal policy must ensure that the trajectory of public debt is sustainable and restore space for supporting the economy when needed,” BIS said. “Central banks must retain their focus on keeping prices stable.”
The BIS’ annual report is an important barometer of central bankers’ thinking due to the Switzerland-based forum’s regular meetings of top policymakers.
