The risk that inflation expectations could pose to the global economy amidst the ongoing trade uncertainty should not be underestimated, warns the Bank for International Settlements (BIS).
“Inflation expectations are very sensitive right now, and they could really jump if inflation were to be realized,” Hyun Song Shin, an economic adviser at the institution and author of its 2025 Annual Economic Report released Sunday, said. “That’s the kind of risk we’re facing.”
For one thing, trade uncertainty is impacting global supply chains, which could lead to potential trade disruptions and a temporary shortage of some goods.
As witnessed during the pandemic, such disruptions can have significant and long-lasting ramifications for production and prices across the economy,” the report said.
Shin said the pandemic and subsequent inflation left a deep imprint on most respondents the BIS recently surveyed in 29 advanced and emerging market economies. On average, the households surveyed expect inflation to be about eight per cent over the next 12 months.
BIS said the growth outlook for the global economy has also been impacted by tariffs, with global gross domestic product (GDP) expected to come in at 2.7 per cent in 2025 and only a little higher in 2026.
“These forecasts are around a quarter of a percentage point lower than expectations at the start of 2025,” the report said.
The expected slowdown in growth has translated into slowing business investment and complicates the future path of productivity in most countries. The BIS also warns there are risks associated with high sovereign debt levels.
