World economy faces ‘pivotal moment,' central bank body BIS says
The outgoing head of the BIS, often dubbed the central bankers' central bank, Agustín Carstens, said the US-driven trade war and other policy shifts were fraying the long-established economic order.
He said the global economy was at a 'pivotal moment,' entering a 'new era of heightened uncertainty and unpredictability,' which was testing public trust in institutions, including central banks.
5 General Manager of the Bank for International Settlements (BIS) Agustín Carstens speaks at the forum Tokenization and the Financial System during the World Bank/IMF Spring Meetings at the International Monetary Fund (IMF) headquarters in Washington, Wednesday, April 23, 2025.
AP
The bank's report is published just over a week before President Trump's trade tariff deadline of July 9 and comes after six months of intense geopolitical upheaval.
When asked about Trump's criticisms of Federal Reserve Jerome Powell, which have included Trump labeling the Fed chair as 'stupid,' he was not overly critical.
'It is to be expected at certain points in time that there will be friction,' former Mexican central bank governor Carstens told reporters, referring to the relationship between governments and central banks. 'It is almost by design.'
The BIS' annual report, published on Sunday, is viewed as an important gauge of central bankers' thinking given the Switzerland-based forum's regular meetings of top policymakers.
5 The Bank for International Settlement's report was released just over a week before President Trump's July 9 trade tariff deadline.
AP
Rising protectionism and trade fragmentation were 'particular concerning' as they were exacerbating the already decades-long decline in economic and productivity growth, Carstens said.
There is also evidence that the world economy is becoming less resilient to shocks, with population aging, climate change, geopolitics and supply chain issues all contributing to a more volatile environment.
The post-COVID spike in inflation seems to have had a lasting impact on the public's perception about price moves too, a study in the report showed.
5 Bank for International Settlements chief Agustín Carstens was not overly critical of President Trump's criticisms of Federal Reserve Chair Jerome Powell, above.
Getty Images
High and rising public debt levels are increasing the financial system's vulnerability to interest rates and reducing governments' ability to spend their way out of crises.
'This trend cannot continue,' Carstens said referring to the rising debt levels and he said that higher military spending could push the debt up further.
Hyun Song Shin, the BIS's main economic adviser, also flagged the sharp fall in the dollar. It is down 10% since the start of the year and on track to be its biggest first-half drop since the free-floating exchange rate era began in the early 1970s.
5 Hyun Song Shin, the BIS's main economic adviser, flagged the sharp fall in the dollar, which is down 10% since the start of the year.
AFP via Getty Images
Shorter-term analysis, though, showed 'hedging' by non-US investors holding Treasuries and other US assets appears to have made an 'important contribution' to the dollar's slide over the last few months.
'We haven't seen anything (yet) that would give us any cause for alarm,' Shin added.
The BIS had already published one part of its report last week that gave a stark warning about the rapid rise of so-called stablecoins.
5 The Bank for International Settlements headquarters in Basel, Switzerland.
doganmesut – stock.adobe.com
He said there was no evidence that this was the start of a 'great rotation' away from US assets as some economists have suggested, but acknowledged that it was still too early to know given sovereign funds and central banks move slowly.
In terms of the BIS' own finances, it said it made a net profit of $1.2 billion, while its total comprehensive income reached a record high of $5.3 billion and currency deposits at the bank also reached a new high.
'It is important that the BIS has the highest creditworthiness out there,' Carstens said.
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