Global growth will slow to 2.6 per cent in 2025, down from 2.9 per cent 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, reports UNB.
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 per cent.
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 Organisation 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 per cent in 2025 to 2.9 per cent 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 per cent 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 per cent, compared with 1 to 4 per cent 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.
