It also warned there was a danger that financial markets had overlooked the risk that inflationary pressures might emerge, especially in the US.
Wim Duisenberg, BIS president, said: "The question is whether the macroeconomic risks have been correctly evaluated and factored into asset prices or whether the materialisation of any of them could trigger some broader form of retrenchment."
The report concluded that economic prospects were the most promising for some time. It welcomed governments' general commitment to price stability and their efforts to cut budget deficits.
But it said these efforts, and especially the race to meet the Maastricht criteria in Europe, could not be blamed for high unemployment. Governments had to face the fundamental question of whether they could continue to honour all the past promises to protect workers, pensioners and those on benefits and making progress towards EMU was only a secondary consideration.
Hamish McRae, page 24