Abu Dhabi: Global growth is projected to decelerate to 2.3% in 2025, falling below the 2.5% threshold commonly associated with a global recession, as reported by the UN Trade and Development (UNCTAD) in its latest analysis. This slowdown represents a significant downturn compared to the already tepid growth rates experienced before the pandemic.
According to Emirates News Agency, UNCTAD warns that increasing uncertainty is exerting pressure on the global economy. Trade tensions have been intensifying, with recent tariff increases diminishing predictability. The potential for rising fragmentation may exacerbate the economic decline.
Trade policy uncertainty has reached unprecedented levels, affecting business confidence and altering global trade dynamics. This has led manufacturers and investors to postpone decisions, reevaluate supply chain strategies, and enhance risk management efforts.
Following a temporary surge at the end of 2024, the momentum in merchandise trade is waning. The Shanghai Containerized Freight Index plummeted by 40% between January and March 2025, returning to pre-pandemic levels.
Record levels of economic policy uncertainty are also contributing to financial instability. At the start of 2025, the Economic Policy Uncertainty Index soared to its highest point this century, surpassing peaks seen during the 2008 financial crisis and the COVID-19 pandemic.
In early April, financial markets experienced sharp corrections and substantial losses after a period of volatility. The financial 'fear index,' a measure of US stock market volatility, reached its third-highest recorded level, surpassed only by peaks during the pandemic and the global financial crisis.
Increased uncertainty is causing bond yields to rise, reflected in an increasing "term premium"-the additional compensation investors require for holding long-term debt. This is elevating financing costs for governments, households, and businesses, further pressuring global interest rates and complicating prospects for developing economies.
The economic slowdown will impact all nations, with UNCTAD emphasizing specific risks for developing countries. Many low-income economies are confronting a 'perfect storm' of tighter financial conditions, significant external debt, and weakening domestic growth. According to the International Monetary Fund, more than half of low-income countries-35 out of 68-are currently in debt distress or at high risk.
Persistently high bond yields in advanced economies, coupled with stricter US monetary policy, are anticipated to reduce financial flows to developing regions. Investor caution is redirecting capital toward perceived 'safer' assets and markets, further straining financing for the Global South.
Despite these challenges, opportunities exist. Trade among developing countries, also known as South-South trade, is expanding at a faster rate than other trade flows and now constitutes approximately one-third of global trade.
In East and South-East Asia, intraregional trade has been a significant driver of economic growth, with the region contributing over 40% of global growth in 2024.
UNCTAD's report advocates for stronger regional integration, renewed multilateral cooperation, and a rebalancing of fiscal priorities towards sustainable infrastructure, social protection, and climate action. The report stresses that coordinated efforts will be crucial to restoring confidence and maintaining development momentum.