The Bank for International Settlements (BIS) has raised alarms about growing global risks tied to rising debt levels, an expanding artificial intelligence (AI) sector, and various economic weaknesses. Its Annual Economic Report, released on June 28, 2026, outlines several challenges that could threaten economic stability worldwide.
The BIS points to a tangled mix of pressures. These include strained government budgets, persistent supply chain problems, and the risk that inflation will stay high for longer than expected. Despite recent resilience in economic activity, the central bank group urges policymakers to respond firmly to maintain stability.
Inflation has shown signs of picking up again. The report warns that if supply disruptions happen more often, they could cause households and businesses to expect higher inflation regularly. Pablo Hernandez de Cos, the BIS General Manager, told reporters that central banks must be ready to act quickly if inflation expectations become entrenched. He noted that the recent ceasefire between the US and Iran, along with the reopening of the Strait of Hormuz, reduces the chances of extreme oil price shocks. Still, he said it will take time for the oil market to fully stabilize.
The surge of investment in AI presents another source of uncertainty. While AI has improved business confidence and growth prospects due to expected productivity gains, the BIS highlights concerns about jobs and supply chain strains. It also cautions that heavy competition and supply issues could lead to overinvestment, similar to past boom-and-bust cycles.
Financial vulnerabilities remain a key concern. The report points to elevated asset prices and investor complacency, which have left core bond markets more fragile. It also highlights the growing use of debt and complex funding arrangements in financing the AI boom. Additionally, it draws attention to record-high public debt and a sovereign debt market increasingly influenced by leveraged hedge funds. This situation creates what the BIS calls a “sovereign-financial stability nexus,” raising the risk of sudden, sharp falls in sovereign bond values that could tighten financial conditions quickly.
Frank Smets, acting head of the BIS’s monetary and economic department, stressed that this new nexus might lead to more frequent and severe swings in bond markets. Hernandez de Cos emphasized the urgency of reducing debt levels in major economies, noting that much of today’s debt is financed through non-bank financial intermediaries, which adds to the risks.
To address these challenges, the BIS calls for strong policy measures. Policymakers should focus on maintaining price stability, ensuring fiscal sustainability, improving oversight beyond traditional banks, and advancing structural reforms. De Cos concluded by warning that delays in action will only make needed adjustments costlier in the future.
The BIS’s report sends a clear message to global leaders: managing these intertwined risks requires coordinated and decisive policy steps now to support long-term economic health.
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