The global economy faces rising challenges, with elevated public debt, persistent inflation risks, fragile financial markets, and uncertainty surrounding the AI-driven investment surge creating fresh concerns, according to a report by the Bank for International Settlements. The Basel-based institution identified four major areas of concern: renewed inflation risks driven by supply disruptions, stretched fiscal positions, fragile financial markets, and uncertainty over the sustainability of AI-led investment. The report said repeated supply shocks could push inflation expectations higher, and BIS General Manager Pablo Hernandez de Cos said central banks must remain prepared to act if inflation expectations become entrenched. The BIS cautioned that excessive AI investment, supply constraints, and intense competition could create risks similar to previous boom-and-bust cycles. Financial markets show signs of vulnerability, with high asset valuations and investor complacency, and the BIS warned that AI financing is increasingly linked to debt and complex funding arrangements. Rising government debt has created a new “sovereign-financial stability nexus,” increasing the possibility of sharper swings in bond markets and tighter financial conditions. The BIS urged governments to focus on fiscal discipline, price stability, stronger financial oversight, and structural reforms.