The United Nations Conference on Trade and Development (UNCTAD) published its annual report titled “Trade and Development Foresights 2025: Under Pressure – Uncertainty Reshapes Global Economic Prospects”. This report, updated as of April 2025, provides a deep dive into the current and projected state of the global economy, analyzing trends in growth, financial conditions, trade, and development challenges. The insights in this article are directly sourced from the report and are crafted specifically to benefit aspirants of government exams such as UPSC, RBI Grade B, SSC, and others.
Global Economic Outlook in 2025
Slowdown in Global Growth
UNCTAD predicts that global economic growth will fall to 2.3% in 2025, down from 2.8% in 2024, indicating a move toward a recessionary phase. This projected rate is below the 2.5% threshold, which UNCTAD considers a marker of global economic stagnation. The slowdown is attributed to subdued global demand, rising trade barriers, and financial turbulence.
- Many regions, including Latin America, Europe, and parts of Asia, are expected to experience slower or stagnant growth.
- Growth remains stronger in regions like Sub-Saharan Africa and parts of South and East Asia due to stronger domestic demand and trade resilience.
Record-High Policy Uncertainty
Economic policy uncertainty, as measured by the Economic Policy Uncertainty Index, is at its highest level in the 21st century. This reflects growing concern over international trade disputes, particularly the implementation of new tariffs by the United States and geopolitical tensions.
- Businesses are delaying investments and hiring due to unpredictability.
- Policy shifts are making long-term planning increasingly difficult.
Financial Turbulence and Investor Anxiety
Market Volatility and Fear Index
UNCTAD highlights heightened financial volatility using the VIX (Volatility Index), commonly referred to as the “fear index.” This index reached its third-highest level historically, surpassed only during the 2008 global financial crisis and the 2020 pandemic crash.
- Investors are highly concerned about a global recession.
- Tariff announcements and slowdowns in major economies like the US and EU have triggered sell-offs and risk aversion.
Safe-Haven Investments Surge
In times of uncertainty, investors seek safe assets. As a result:
- Gold prices have soared to record highs.
- The US dollar and Treasury bonds remain highly sought, despite unusual trends like rising long-term interest rates during periods of monetary easing.
This behavior is fueled by both central banks’ gold purchases and investor concerns over inflation and asset volatility.
Rising Bond Yields and Costlier Borrowing
Despite central banks in Europe and the US initiating rate cuts in late 2024, long-term bond yields are rising due to increased term premiums demanded by investors.
- This trend puts upward pressure on global interest rates, impacting borrowers globally.
- Developing countries are especially vulnerable, with limited access to affordable credit and increasing debt-servicing costs.
Impact on Developing Economies
High Debt and Tight Financial Conditions
- More than half of low-income countries are either in debt distress or at high risk of it.
- Tighter global financial conditions mean these nations struggle to raise funds and must divert money from development projects to repay debt.
Resilience Through Regional and South–South Trade
Despite global trade uncertainties, some patterns offer hope:
- South–South trade (trade between developing countries) has been increasing steadily, especially led by China.
- Intra-Asian trade is growing, accounting for a major share of global economic expansion.
- In 2024, East and South Asia contributed over 40% to global economic growth.
India’s Role in the 2025 Global Economic Landscape
Strong Economic Performance and Trade Resilience
- India is identified as a key contributor to global growth in 2024 and 2025, along with China and Indonesia.
- India’s growing domestic demand and regional trade linkages strengthened its position in global markets.
Export Performance and Services Strength
- India saw notable growth in digitally-deliverable services, especially IT and business process outsourcing (BPO).
- These services helped buffer the effects of declining global merchandise trade.
Macroeconomic Stability
- India maintained relatively stable inflation rates and pursued balanced monetary policies via the Reserve Bank of India (RBI).
- Its foreign exchange reserves and current account balance supported market stability and investor confidence.
Policy Direction and Global Positioning
- India is deepening ties through regional trade agreements.
- The country is leveraging its tech-enabled service sector and youthful workforce to expand its economic footprint.
Trade Trends and Policy Challenges
Shrinking Merchandise Trade
The brief spike in global trade during late 2024 and early 2025 was largely due to pre-emptive stockpiling before anticipated tariff hikes.
- Since April 2025, a sharp decline is underway due to trade tensions.
- Trade indicators like the Baltic Dry Index and Shanghai Freight Index have dropped, signaling lower shipping demand and slower merchandise trade.
Trade in Services Remains Strong
Unlike merchandise trade, services trade has shown resilience, particularly in digital sectors.
- Developing countries like Indonesia and Mauritius have reported strong growth in computer and IT services exports.
- Latin American countries such as Chile, Argentina, and Peru recorded over 20% growth in service exports.
These digitally-deliverable services offer a crucial lifeline for economies facing trade headwinds in goo
Fiscal Policy and Military Spending
Shift from Social Spending to Defence
Many G7 nations are redirecting fiscal resources from social sectors to military budgets:
- The UK plans to raise military spending to 2.5% of GDP by 2027.
- Germany, France, and Italy are also increasing defence expenditures.
- The EU announced an €800 billion Rearm Europe plan, focusing on strategic infrastructure.
This trend risks undermining global progress on the Sustainable Development Goals (SDGs), especially in health, education, and climate.
Decline in Official Development Assistance (ODA)
- ODA to developing countries is expected to decline by 18% between 2023 and 2025.
- Aid for economic infrastructure has fallen, while humanitarian aid has increased.
- Programmable aid—crucial for planning and implementation—has dropped significantly, limiting developing countries’ ability to design long-term strategies.
Capital Flows and Public Debt
Investor Caution and Reduced Private Flows
- Emerging markets are witnessing lower capital inflows, especially after the US announced new tariffs.
- Yields on frontier market bonds have plateaued at high levels (around 8%) and increased by another 150 basis points after April’s policy changes.
Public Debt Pressures
Countries like Argentina, Egypt, Nigeria, and Türkiye, despite recent reforms, are under financial strain.