The Bank for International Settlements has published its Annual Economic Report 2026, warning that the global economy faces four main pressure points: rising inflation, uncertainty over the sustainability of the artificial intelligence investment boom, persistent financial vulnerabilities and strained public finances. The BIS said policymakers should respond with disciplined and mutually reinforcing monetary, fiscal and financial stability policies, alongside structural reforms, to preserve price stability and support sustainable growth. The report says a world of more frequent negative supply shocks raises the risk that inflation becomes embedded if expectations de-anchor, even after energy flows and oil prices normalize following the reopening of the Strait of Hormuz. It also warns that AI-related capital spending could prove unsustainable if supply bottlenecks constrain output or competition leads to over-investment. On financial stability, the BIS highlights fragile liquidity in core bond markets, stretched asset valuations, investor complacency and increasingly leveraged financing across the AI supply chain. It places particular emphasis on a new sovereign-financial stability nexus in which near-record public debt, higher interest rates and the growing role of highly leveraged non-banks such as hedge funds can amplify sovereign bond market stress, tighten financial conditions quickly and complicate central bank policy calibration.

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