The Global Economy at a Crossroads: Triggers for the "Next Decade" as Outlined in the BIS Annual Report

1. Introduction: An Era Where the "Blueprint" is Shaken

The BIS, known as the "central bank of central banks," published its annual economic report on the morning of the 29th (Basel time), beginning the chapters with the unusually strong words, **“The world economy faces a pivotal moment”**. In the introduction of the report, General Manager Agustín Carstens stated, "The existing rules of trade and finance are simultaneously fraying, testing the trust in institutions." investing.com

2. Core Points of the Report

1. Expansion of Protectionism—The additional tariffs announced by the U.S. in April raise concerns about the reorganization of global trade flows starting July 9.

2. Stickiness of Inflation Expectations—Post-COVID price increases are not temporary, leaving "cognitive scarring" and affecting wage negotiations.

3. Dollar Weakening Trend—A 10% decline over six months, the largest since the start of the floating exchange rate system in the 1970s. The cause is attributed to hedging transactions by non-U.S. investors.

4. Limits of Accumulated Debt—The public debt ratio has surpassed 120% of GDP on average in major countries. A warning that "fiscal firepower for the next crisis is running out."

5. Climate, Demographic, and Geopolitical Risks—Aging populations and delays in climate investment are persistently lowering potential growth rates. bis.org

3. Market Impact: Dollar Weakness and Bond Market Distortions

Chief Economic Advisor Hyun Song Shin stated at a press conference that "no large-scale capital flight has been confirmed at this point," but explained that Changes in Hedging Demand are pushing down the dollar index. While the VIX index remains calm in the 16 range, the U.S. 10-year bond yield is stuck at 4.3%, continuing a state of "surface calm and underlying tension." reuters.com

4. "Heat and Noise" Reflected by Social Media

Discussions converged on three points: ① the future of the dollar-centric system, ② central bank digital currencies (CBDCs) and tokenization, ③ the shift of funds to commodities and gold.

5. Expert Opinions

• CEPR Podcast features BIS Deputy Director Frank Smets candidly reflecting, "Last year's 'soft landing optimism' has been revised." cepr.org

• Central Banking Journal (CentralBanking.com) reporter Thomas Chow warns, "Do not misjudge structural issues by being preoccupied with short-term shock responses." centralbanking.com

6. Impact Estimates by Policy Scenario

| Scenario | Tariff Implementation | Dollar Index (Year-End) | G7 Real GDP | Bond Yields |
| Baseline | 10% Increase | 95 | +1.4% | +30bps |
| Deterioration | 20% Increase + Retaliatory Tariffs | 90 | 0% | +70bps |
| Easing | Implementation Delay | 98 | +1.8% | +10bps |

*Unique estimates combining elasticity coefficients shown in the BIS report and the latest IMF WEO.

7. Recommendations for Central Banks and Investors

1. Two-Stage Monetary Policy—Consider suppressing long-term interest rates through "reinvestment" of asset purchases, alongside maintaining short-term interest rates.

2. Redesign of Fiscal Rules—In addition to the debt-to-GDP ratio, visualize a sustainable line by indexing "interest burden/revenue ratio."

3. Climate and Demographic Linked Bonds—Propose new ESG-linked bonds in addition to GDP-linked bonds as a mechanism to curb the burden on future generations.

8. Conclusion: To Break Through the "Pivotal Moment"

The global economy is losing the "old set of three" of free trade, low interest rates, and low inflation, and is seeking a new equilibrium. The lesson from the BIS report is a simple yet challenging proposition: "Simultaneously extinguish short-term fires and build long-term houses." Can policymakers and market participants take coordinated action? Now is indeed a historical turning point.