Global Growth Slows to 2.6%, UN Warns of Fragility
UNCTAD vs WTO: Subdued 2025 Growth Outlook
Geneva: The United Nations Trade And Development (UNCTAD) projects that global output will expand by only 2.6 per cent in 2025, down from 2.9 per cent in 2024, signalling a continuation of subdued global growth amid elevated policy uncertainty and persistent financial vulnerabilities. Developing economies are projected to grow faster than the global average, at 4.3 per cent in 2025, but this is expected to slow slightly to 4.2 per cent in 2026. Early 2025 saw temporary resilience due to frontloading of imports and accelerated investment in emerging technologies, particularly artificial intelligence, which boosted production and trade in select sectors. However, UNCTAD warns that these transitory effects will fade, and normalisation of trade and consumption patterns is likely to weigh on growth in the latter half of 2025 and into 2026.
Global trade is closely entwined with the financial system, with over 90 per cent of world trade relying on international banking and financial infrastructure. Yet trade and finance operate under different systemic principles: while roughly 72 per cent of trade flows remain governed by World Trade Organization (WTO) most-favoured-nation rules, financial systems follow market conventions and private regulatory networks. This asymmetry magnifies the impact of financial volatility on trade, particularly for smaller and vulnerable developing economies, which face exposure to capital flow reversals, exchange rate shocks, and increasing debt servicing costs.
Frontloading of imports in early 2025, in anticipation of tariff measures, temporarily boosted trade flows, particularly toward major economies such as the United States. Production levels were increased to meet this short-term demand surge. However, as these effects unwind, global output and trade are expected to decelerate, revealing the fragility masked by initial resilience. The report notes that uncertainties surrounding trade policy, tariffs, and geopolitical tensions continue to disrupt international value chains, complicating investment decisions and causing firms to delay capital expenditure and hiring. Economies closely integrated into global value chains, especially those dependent on United States-linked production networks, are particularly exposed to these shocks.
Although UNCTAD projects growth at 2.6 per cent in 2025, the World Trade Organization (WTO) estimates a slightly higher global GDP expansion of around 2.7 per cent, with merchandise trade volumes expected to grow by approximately 2.4 per cent. The WTO’s forecast incorporates short-term cyclical factors such as import frontloading and sector-specific demand, while UNCTAD’s outlook emphasises systemic vulnerabilities, the fragility of trade-finance linkages, and broader structural risks. This divergence highlights that headline growth numbers alone do not capture underlying global economic fragility.
The report emphasises that coordinated policy action is essential to stabilise the global economy. Strategies include diversifying export markets through regional integration, enhancing domestic revenue mobilisation, and exploring alternative mechanisms for international trade settlement to reduce dependency on volatile capital flows. UNCTAD underscores that multilateral cooperation and coordinated policymaking are critical to prevent economic fragmentation, sustain long-term development, and address global challenges such as rising inequality and climate change.
UNCTAD concludes that while technological adoption and trade expansion present opportunities, the global economy remains on the brink. Structural fragility, uneven recovery across regions, and policy uncertainty leave households, firms, and investors navigating a cautious environment. Without decisive interventions to stabilise trade-finance linkages and support sustainable investment, growth is likely to remain subdued, and vulnerabilities may be amplified in the coming years.
– global bihari bureau
