UNCTAD expects global growth to slow to 2.3% this year as trade and economic policy uncertainty erode business and investor confidence.
Global growth is forecast to slow to 2.3% in 2025, slipping below the 2.5% threshold often associated with a global recession, UN Trade and Development (UNCTAD) said in its latest report. This marks a sharp deceleration compared to already sluggish pre-pandemic growth rates.
UNCTAD warns that rising uncertainty is weighing heavily on the global economy. Trade tensions are escalating, with recent tariff hikes undermining predictability. Rising fragmentation, if left unchecked, could deepen the downturn.
Trade and financial turbulence intensify amid policy uncertainty
Trade policy uncertainty, now at historic highs, is eroding business confidence and reshaping global trade patterns. Manufacturers and investors are delaying decisions, reassessing supply chain strategies and stepping up risk management efforts.
After a temporary surge at the end of 2024, merchandise trade momentum is fading, with the Shanghai Containerized Freight Index dropping by 40% between January and March 2025, falling back to pre-pandemic levels.
Record-high economic policy uncertainty is also fuelling financial turbulence. In early 2025, the Economic Policy Uncertainty Index reached its highest level this century, surpassing peaks during the 2008 financial crisis and the COVID-19 pandemic.
In early April, markets saw sharp corrections and heavy losses after weeks of volatility. The so-called financial “fear index” – a gauge of US stock market volatility – reached its third-highest level on record, behind only the peaks seen during the pandemic and global financial crisis.
Heightened uncertainty is pushing up bond yields, reflected in a rising "term premium" – extra compensation investors demand for holding long-term debt. This is raising financing costs for governments, households and firms, putting further upward pressure on global interest rates and complicating prospects for developing economies.
Developing economies face “perfect storm”
The slowdown will affect all economies, but UNCTAD highlights particular risks for developing countries. Many low-income economies face a “perfect storm” of tighter financial conditions, high external debt and weakening domestic growth. More than half of low-income countries – 35 out of 68 – are now in debt distress or at high risk, according to the International Monetary Fund.
Persistently high bond yields in advanced economies, alongside tighter US monetary policy, are expected to crowd out financial flows to developing countries. Investor caution is redirecting capital toward assets and markets perceived as “safer”, further straining financing for the Global South.
Regional integration offers a buffer
Despite the headwinds, opportunities exist. Trade among developing countries – also known as South-South trade – is expanding faster than other trade flows and now accounts for about one third of global trade.
In East and South-East Asia, intraregional trade has been a major force behind economic growth, with the region contributing over 40% of global growth in 2024.
UNCTAD’s report calls for stronger regional integration, renewed multilateral cooperation and a rebalancing of fiscal priorities toward sustainable infrastructure, social protection and climate action. Coordinated action, it says, will be essential to restore confidence and keep development on track.