The global economy is on a recessionary trajectory, driven by escalating trade tensions and persistent uncertainty, UN Trade and Development (UNCTAD) warned in a new report.
Global economic growth is projected to slow to 2.3 percent in 2025, placing the world economy on a recessionary path, the report said, citing mounting threats including trade policy shocks, financial volatility and a surge in uncertainty that risks derailing the global outlook.
Global growth’s fall below the 2.5 percent threshold is often associated with a global recessionary phase. This marks a sharp deceleration compared to the average annual growth rates of the pre-pandemic period, which were already sluggish.
Trade policy uncertainty at historical high
Rising trade tensions are impacting global trade, with UNCTAD noting that recent tariff measures are disrupting supply chains and undermining predictability. “Trade policy uncertainty is at a historical high,” the report notes, “and this is already translating into delayed investment decisions and reduced hiring.”
The global economy’s slowdown will affect all nations, but UNCTAD remains concerned about developing countries and especially the most vulnerable economies. Many low-income countries face a “perfect storm” of worsening external financial conditions, unsustainable debt and weakening domestic growth.
More than half of low-income countries are currently in debt distress or at high risk of debt distress. A rapid build-up of debt, especially in developing countries, combined with persistently tight financing conditions, is straining already limited fiscal space. With borrowing costs still high, governments have to increasingly divert resources from critical spending needs to cover debt-servicing costs.
Meanwhile, capital is increasingly flowing towards “safer” or more “stable” assets and markets, typically in advanced economies, to the detriment of financial flows to developing countries.
Economic Policy Uncertainty Index hits century-high
In early 2025, the Economic Policy Uncertainty Index reached its highest levels this century. In April 2025, growing concerns over the global economy’s outlook and shifting trade policies triggered major financial turbulence. Markets saw sharp corrections and significant losses after weeks of volatility, with the so-called financial “fear index” – a gauge of U.S. stock market volatility – hitting its third-highest level on record.
The report warns that the ongoing geoeconomic fragmentation, if left unchecked, could deepen the downturn.
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South-South trade to provide resilience
UNCTAD underlines the real threat to economic growth, investment and development progress, particularly for the most vulnerable economies. The report notes, however, that the growth of trade among developing countries (South-South trade) is a source of resilience.
Already accounting for about one third of global trade, “the potential of South-South economic integration offers opportunities for many developing countries”, the report notes. Intra-regional trade, particularly in East and South-East Asia, is helping drive this growth.
