In its newly published Annual Economic Report 2026, BIS said the global economy remained resilient through early 2026, supported by strong trade and AI optimism, but the Strait of Hormuz supply shock exposed its fragility despite easing geopolitical tensions and lower oil prices.
The global economy is entering a more fragile phase as persistent inflation risks, rising public debt, financial vulnerabilities and uncertainty surrounding the artificial intelligence (AI) investment boom puts pressure on future growth, the Bank for International Settlements (BIS) said in its Annual Economic Report 2026.
According to the report, the world economy had shown surprising resilience through successive shocks, supported by strong global trade, favourable financial conditions and optimism surrounding AI-driven productivity gains. However, that resilience is now being tested by a series of mounting “pressure points” that require urgent policy action.
“The sustainability of the AI boom, financial vulnerabilities and strained public finances are among the pressure points facing the global economy,” the institution said.
Policymakers should therefore prioritise price stability, restore fiscal sustainability, strengthen financial stability beyond the banking sector and implement structural reforms to ensure long-term economic growth.
On AI, BIS cautioned that while it remains a transformative force with the potential to boost productivity, the current surge in investment may prove unsustainable. Supply bottlenecks, together with intense competition among technology firms, could result in over-investment similar to previous innovation cycles.
Meanwhile, financial markets remain exposed to growing vulnerabilities. Stretched asset valuations, increased leverage across AI-related financing and fragile liquidity conditions in sovereign bond markets could amplify future market stress, the report said.
Public finances represent another major source of concern. Near-record government debt levels combined with higher borrowing costs have limited governments’ ability to respond effectively to future economic downturns or crises.
Calling it a “fiscal-financial stability nexus”, BIS added that the growing interaction between elevated sovereign debt and highly leveraged hedge funds, could trigger sharper swings in government bond markets and complicate central banks’ efforts to maintain price stability.
BIS General Manager Pablo Hernández de Cos said coordinated policy discipline was essential to preserve economic resilience. “Policymakers must act now. Delay will only make the necessary adjustments more costly and increase the chance of difficult trade-offs in the future,” he said.
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