Geneva: In April 2025, concerns over the global economic context and the impact of trade policy shifts have translated into major financial turbulence, indicating a recession risk. Sharp corrections and significant losses in financial markets followed weeks of volatility that marked the opening months of 2025. With the so-called financial ‘fear index’ at its third highest level – after the peaks of 2008 and 2020 – fears of recession in the United States are growing, while the international ramifications of tariff tensions add to investor anxiety regarding the prospects for economies worldwide.
UN Trade and Development (UNCTAD) projects global economic growth to slow to 2.3%, below the threshold of 2.5 per cent, in 2025, signalling a recessionary trend driven by escalating trade tensions and uncertainty, according to its report released today, Trade and Development Foresights 2025 – Under pressure: Uncertainty reshapes global economic prospects.
“This is a significant deceleration compared to the average annual growth rates registered in the pre-pandemic period, which itself was a period of subdued growth globally,” UNCTAD stated.
The outlook for the global economy is increasingly worrying, the report warns. The report urges stronger international policy coordination and regional trade to counter risks. Rising trade tensions, marked by recent tariff measures, disrupt supply chains and delay investment and hiring decisions.
“The global outlook for 2025 is clouded by heightened policy uncertainty, the levels of which in early 2025 were the highest observed in this century,” the report states, contributing to financial volatility and threatening the global outlook.
The initial optimism at the beginning of 2025 regarding a dynamic expansion of the economy in the United States – largely driven by expectations of a short-term boost from corporate tax cuts, deregulation measures and monetary easing – is tempered by the abrupt shifts in trade and immigration policies, which are already generating significant negative supply shocks. In addition, the macroeconomic effects of tariffs raise the risks of a period of stagflation in the latter part of 2025.
For its part, an uptick in inflationary pressures in the United States in recent months has resulted in a more cautious approach to the Federal Reserve’s loosening of monetary policy. The prior broad consensus of policy rate cuts in each quarter, resulting
in an accumulated reduction of 100 basis points by year-end, is being revised. In turn, the effects of the “higher-for-longer” policy rates will be felt both domestically and internationally.
In the euro area, despite the ongoing normalisation of monetary policy, domestic demand is unlikely to rebound, the report says. The manufacturing sector, which has been struggling in recent years under the pressures of global competition and elevated domestic energy prices, is particularly vulnerable to the imposition of tariffs and a deteriorating external environment.
Yet, on the positive side, the announcement by the incoming Government in Germany – which accounts for almost a third of the eurozone economy – of reforms to fiscal rules that had previously acted as a brake on public spending, particularly on infrastructure, holds out the possibility of an improvement in growth prospects in the years ahead.
Developing countries are vulnerable to global financial volatility, with the economies of Asia – the region most integrated into the global value chains – particularly affected by financial turbulence. Current risks stem from two areas. On the one hand, the recent financial boom has been concentrated in the technology stocks of advanced economies, with companies from developing countries finding it difficult to raise capital. On the other hand, while current gyrations in the financial markets can accelerate financial inflows into some emerging market assets, in the context of systemic uncertainty, trade tensions and slowing demand, short-term speculation adds to financial stability risk.
In the case of China, the report says, growth is expected to be supported by the ramping up of fiscal and monetary stimulus measures as well as structural policies. Similarly, a series of policy actions undertaken to stabilise the real estate sector appear to have had the desired effect, as the sector’s declining trend has eased since the end of 2024. However, the increasingly difficult external context will undoubtedly weigh on growth.
Across the rest of the global South, developing regions face an increasingly challenging environment. The imposition of escalating rounds of tariffs will have a disproportionately large impact (both directly and indirectly) on developing countries, particularly those that are more integrated into global supply chains. Similarly, elevated policy uncertainty and subsequent delays in investment and hiring decisions will have a dampening effect on both employment and household incomes.
The report says developing countries, particularly low-income economies, face a “perfect storm” of worsening external financial conditions, unsustainable debt, and weakening domestic growth. These challenges threaten economic growth, investment, and development progress in the Global South.
South-South trade, accounting for one-third of global trade, though, offers resilience. The report highlights the potential of economic integration among developing countries as an opportunity to mitigate risks, referring to the growth of trade among developing countries (South-South trade).
UNCTAD calls for dialogue, negotiation, and coordinated action to restore confidence and sustain development. Building on existing trade and economic ties, stronger regional and global policy coordination is essential, the report concludes.
– global bihari bureau
