Basel, June 29 (QNA) - The Bank for International Settlements (BIS) warned that the global financial system is entering a critical juncture due to escalating trade disputes and geopolitical tensions, which risk exposing deep structural rifts that threaten global stability.

In its annual report on the state of the global economy released on Sunday, the BIS described the current situation as a "pivotal moment" for the world economy.

The report emphasized that the financial system is moving into a "new era of uncertainty and volatility," putting public trust in institutions - including central banks - under significant strain.

Addressing the upward trend in government spending, particularly military expenditure, the report cautioned that this trajectory is unsustainable without consequences, calling for a reassessment of fiscal and debt policies.

Widely regarded as the central bank for central banks, the BIS - headquartered in Basel, Switzerland - produces an annual report that serves as a key reflection of prevailing thought within global monetary policy circles.

The report comes at a sensitive time, just days ahead of a July 9 deadline set by US President Donald Trump to impose additional tariffs, and six months into a period marked by intense geopolitical developments.

The BIS warned that protectionist policies and widening trade divides are a growing concern, compounding the long-term slowdown in economic growth and productivity.

It also noted that the global economy's capacity to absorb shocks is weakening, amid mounting demographic and climate-related challenges, and ongoing disruptions in supply chains.

The report further highlighted that the inflation surge following the COVID-19 pandemic has significantly reshaped consumer expectations around prices.

At the same time, high levels of public debt are eroding governments' ability to respond effectively to future crises - especially in an environment of rising interest rates. (QNA)