Trade Tensions and Uncertainty Cloud Global Economy

Trade tensions and heightened uncertainty cloud the outlook for growth and inflation and risk exposing deeper fault lines in the global economy and financial system, the Bank for International Settlements (BIS) an international financial institution owned by member central banks, said on Sunday.

 in its flagship Annual Economic Report 2025, which was released at its annual general meeting, the BIS also called on policymakers to step up as a stabilising force as the prospects for the global economy have become much more uncertain and unpredictable in recent months, with trade disruptions roiling financial markets and threatening to reshape the global economic landscape.

BIS general Manager Agustin Carstens said that the experience of recent years has been a sharp reminder that price stability is the cornerstone for sustainable growth. For households, price stability means safeguarding the value of their hard-earned money, ensuring that what they save today maintains its worth tomorrow.

According to him, stable prices create the foundation for families to plan their futures with confidence, businesses to invest and grow, and economies to thrive. In an era of heightened uncertainty, preserving this foundation is more important than ever.

“These developments are unfolding in a world already grappling with economic fragmentation, declining productivity, high and rising public debt, and a growing footprint of less regulated nonbank financial institutions. Public policy is crucial as a stabilising force. Policymakers must act decisively on multiple fronts to ensure price stability and promote sustainable economic growth while preserving economic and financial stability,” Carstens added.

Footprint of Non-Banks

Hyun Song Shin, Economic Adviser and Head of the Monetary and Economic Department at BIS, said that the reshaping of the financial system in recent years meant that financial conditions were transmitted more swiftly across economies.

“The increased footprint of non-banks in the financial system in tandem with the growth in bond markets also brings financial stability risks. Institutions and activities that pose similar risks should be regulated with similar stringency,” he explained. 

Other public policy priorities include long overdue structural reforms to address the persistent challenges of low productivity growth and make economies less rigid, the BIS said. Removing barriers to trade would help offset the damage from trade conflicts. Fiscal policy must ensure that the trajectory of public debt is sustainable and restore space for supporting the economy when needed. Central banks must retain their focus on keeping prices stable.