Global economy’s resilience faces growing risks as "luck runs out"

The global economy has weathered a series of major shocks in recent years, but its resilience owes as much to good fortune as to underlying strength, according to a Financial Times analysis citing the latest Bank for International Settlements (BIS) Annual Economic.

The world economy has remained remarkably resilient despite the post-pandemic inflation surge, U.S. President Donald Trump’s tariffs, Russia’s war on Ukraine, the conflict involving Iran and the resulting energy shocks. However, this resilience should not be mistaken for invulnerability, as it reflects a combination of sound fundamentals and considerable luck.

Drawing on the latest Annual Economic Report from the Bank for International Settlements (BIS), the analysis says the global economy has benefited from several favourable developments that have softened the impact of recent crises. Among them was the smaller-than-expected effect of Trump’s tariff campaign, which proved less disruptive because tariff levels were ultimately lower than initially proposed, many U.S. companies absorbed part of the additional costs through reduced profit margins, and the measures were applied unevenly.

The discriminatory nature of the tariffs encouraged trade diversion rather than a collapse in global commerce. Chinese exports increasingly reached the United States through other emerging economies, particularly in East Asia, using Chinese-made inputs. At the same time, other countries largely refrained from adopting similar protectionist policies, helping preserve the global trading system.

The Financial Times also identifies the artificial intelligence investment boom as a major source of economic support. Strong investment in AI has fueled confidence in financial markets, driven a surge in U.S. domestic investment and boosted demand for manufacturing inputs from East Asia, helping global trade remain resilient.

The global economy suffered another significant setback in 2026 following the conflict involving Iran, which effectively closed the Strait of Hormuz for several months. It describes the disruption as the largest oil supply shock in history by volume, although existing energy stockpiles have helped cushion its effects.

Citing the BIS, the Financial Times highlights four major vulnerabilities now confronting the global economy.

The first is renewed inflationary pressure. The report warns that central banks face the risk of another prolonged increase in prices that could further undermine confidence in their ability to maintain inflation targets. As the analysis puts it, “To miss the inflation target badly once might be a misfortune; to miss it a second time, even if far more modestly, would look like carelessness.”

The second risk concerns artificial intelligence. While AI investment has supported growth, the BIS warns that spending could slow sharply if public opposition intensifies or if fierce competition results in disappointing returns, potentially triggering a collapse similar to previous technology-driven investment booms.

Third, the report warns that today's favourable financial conditions could deteriorate rapidly. Compressed risk premiums, rising leverage and the rapid expansion of relatively opaque non-bank financial institutions increase the possibility of market instability. It also notes that private-sector debt levels remain close to those seen before the 2008 global financial crisis.

The fourth concern is deteriorating public finances in advanced economies. Many governments continue to run large structural deficits while public debt has reached levels not seen since the aftermath of the Second World War. Higher interest rates, ageing populations and elevated energy costs further complicate fiscal sustainability.

The analysis also highlights BIS concerns about growing links between government borrowing and highly leveraged hedge funds, warning that sudden market stress could force rapid unwinding of positions, as seen during the COVID-19 pandemic and the United Kingdom’s 2022 "Truss shock."

By Sabina Mammadli