Uncertain outlook for global economy amid trade tensions, BIS report says

The report shows that the global outlook deteriorated in the second quarter of the year, following a series of tariff announcements by the United States. These developments disrupted trade flows, triggered policy uncertainty, and led to cuts in growth forecasts.

“Central banks need to deal with the immediate fallout while keeping top of mind the deeper, structural weaknesses that threaten the resilience of the global economy. Success will depend on maintaining public trust – trust in central banks’ capacity to act and do so in the public interest. Trust in their commitment to low inflation was decisive in quelling pandemic-era inflation. Now, trust in public institutions – including the trust in money – needs to serve as a fixed point for others to rally around,” BIS highlights.

Analysis showed that until early 2025, the global economy appeared stable. Inflation was approaching target levels in many countries, and global growth in 2024 reached just over 3%. Labor markets had largely recovered, while financial markets reflected investor optimism. However, BIS underlined that the new tariffs imposed by the US led to a sharp reversal in sentiment, sparking volatility in equity and currency markets and weakening business confidence.

“The dynamics may well turn out to be far more complex than these simple textbook effects. The global economy is not a collection of islands; it consists of a dense web of interconnections among suppliers, customers, consumers and the financial intermediaries that knit them together. Activity straddles the border, so that traded goods undergo many rounds of value added before finding their eventual customers,” the report reads.

BIS also notes that although the slowdown has yet to be reflected in official economic data, early indicators signal declining confidence among businesses and consumers. Growth forecasts for 2025 have been revised downward in a number of major economies. Inflation expectations have risen in the United States, yet they remain broadly unchanged elsewhere. As a result, some central banks have paused interest rate cuts, while others continue to ease policy in response to uncertainty and slowing demand.

“As the pandemic-era inflation experience made clear, disrupting supply chains could once more lead to upside surprises in inflation. Such a jolt to inflation could rekindle inflation expectations that remain sensitive after the Covid-19-related inflation experience. Even before the full effects of tariffs take hold, economies are expected to feel the impact of high uncertainty, as firms delay investment and hiring plans and households increase precautionary saving,” the report adds.

Beyond trade-related developments, the report draws attention to deeper economic vulnerabilities that fall into three categories: real vulnerabilities, such as low potential output growth; fiscal pressures; and macro-financial vulnerabilities linked to structural changes in the global financial system.

“These vulnerabilities are not new, but the recent turbulence has heightened their relevance. They have the potential to amplify the effects of current shocks and, in some cases, could also generate shocks themselves,” BIS says.

According to the newly released Global Wealth Report 2025 by UBS, global personal wealth increased by 4.6% in 2024, outpacing the previous year’s rate of 4.2%.