Global
growth will slow to 2.6 percent in 2025, down from 2.9 percent in 2024,
due to growing pressure from financial volatility and geopolitical
uncertainty facing global trade and investment, the United Nations Trade
and Development (UNCTAD) said in a report released on Tuesday. The
UNCTAD's Trade and Development Report 2025 shows that shifts in
financial markets affect global trade almost as strongly as real
economic activity, influencing development prospects worldwide, said the
UN trade body. The
report said that despite potential gains from new technologies like
artificial intelligence, global growth is projected to remain subdued in
2026, at 2.6 percent. UNCTAD
said that its projection was based on a global growth aggregate using
market exchange rate (MER) weights rather than purchasing power parity
(PPP) weights used by the Organization for Economic Co-operation and
Development (OECD), with the latter leading to a higher global growth
forecast. The OECD on the same day predicted that global GDP growth will
slow from 3.2 percent in 2025 to 2.9 percent in 2026. UNCTAD
Secretary-General Rebeca Grynspan said the findings show how financial
conditions increasingly determine the direction of global trade. "Trade
is not just a chain of suppliers. It is also a chain of credit lines,
payment systems, currency markets, and capital flows," she said. The report said developing economies are forecast to grow by 4.3 percent in 2025, significantly faster than advanced economies. However,
factors such as higher financing costs, greater exposure to sudden
shifts in capital flows, and rising climate-related financial risks
limit the fiscal and investment space that developing economies need to
sustain growth. The
report noted that many developing economies with small domestic
financial markets rely on external borrowing at significantly higher
rates of 7 to 11 percent, compared with 1 to 4 percent in major advanced
economies. In
addition, climate vulnerability adds to financial pressures, with
countries repeatedly exposed to extreme weather paying an estimated 20
billion U.S. dollars more each year in interest. UNCTAD
called for a set of reforms to reduce financial vulnerability, improve
predictability, and strengthen alignment among trade, finance, and
development. These
measures include trade rule updates, policies to narrow data caps,
international monetary system reforms, and the development of capital
markets.
