Economic Globe Faces Unique Turmoil in the Wake of Escalating Trade Disputes
The Bank for International Settlements (BIS) has issued a stark warning about the global economy in its June 2025 report, highlighting a shift towards increased uncertainty and risk.
According to the report, the global economy's growth outlook has darkened significantly, with forecasts revised downward to about 2.7% growth this year and only a slight improvement in 2026. This downturn is partly attributed to the impact of broad-based U.S. tariffs and trade disruptions.
Trade tensions and economic fragmentation are major concerns, with the BIS warning that rising protectionism could worsen the long-term decline in global economic and productivity growth. The report emphasizes that persistently high levels of public debt reduce governments' capacity to respond effectively to economic shocks and raise financial system risks amid rising interest rates.
The BIS also points to persistent inflation risks stemming from the post-pandemic surge, which may leave lasting impacts on household inflation expectations and complicate monetary policy as inflation could deviate frequently and persistently from targets.
Declining trust in institutions, including central banks, is another issue. Central banks face the difficult task of balancing inflation control with financial stability while monetary tightening pressures key sectors such as banking and real estate.
The report stresses that the era of low interest rates and abundant liquidity has ended, urging policymakers to prioritize structural reforms and sustainable fiscal policies to bolster long-term growth and stability.
Moreover, the BIS notes the increased likelihood of more frequent, intense, and persistent adverse supply shocks driven by climate change and geopolitical tensions, further complicating economic management.
To help mitigate the damage from trade conflicts and create a more stable global economic environment, the report recommends removing trade barriers and restoring prudent fiscal policy space.
In financial terms, the BIS's total comprehensive income hit a record high of SDR 3.4 billion ($5.3 billion), and its net profit was 843.7 million IMF SDR ($1.2 billion) in the latest report. This strong financial standing is essential for maintaining the BIS's high creditworthiness, as highlighted by outgoing head Agustin Carstens.
Currency deposits at the BIS are at an all-time high, signifying the institution's robust financial position. Non-U.S. investors' hedging activities have contributed notably to the dollar's recent decline.
In conclusion, the BIS June 2025 report warns of a pivotal moment characterized by economic fragmentation, trade conflicts, inflation persistence, fiscal vulnerabilities, and institutional challenges, requiring coordinated policy action focused on price stability, fiscal prudence, and structural reforms to sustain global economic stability.
Global trade is under severe pressure due to the escalating trade tensions, as per the BIS June 2025 report. Furthermore, these tensions have the potential to disrupt supply chains and negatively impact the growth of global trade.
The BIS report also indicates that rising protectionism could strain the finances of businesses, particularly those heavily dependent on international trade, given the uncertain economic outlook.
