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    World Economy Teeters on Recessionary Edge amid Rising Trade Tensions and Financial Uncertainty, UNCTAD Warns

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    World Economy Teeters on Recessionary Edge amid Rising Trade Tensions and Financial Uncertainty, UNCTAD Warns

    UNCTAD estimates that India will grow by 6.5 per cent in 2025 on the back of continued robust public spending and ongoing monetary easing.

    The global economy is entering a recessionary phase marked by slowing growth, rising trade tensions, and mounting financial instability, the United Nations Conference on Trade and Development (UNCTAD) has warned in its latest report, Trade and Development Foresights 2025 – Under Pressure: Uncertainty Reshapes Global Economic Prospects.

    According to the report, released on April 16, global growth is expected to slow to 2.3 per cent in 2025, placing the world on a recessionary trajectory. This slowdown, UNCTAD says, is being driven by escalating protectionism, unprecedented trade policy uncertainty, and deteriorating financial conditions. The authors of the report call for immediate international policy coordination and strengthened regional trade mechanisms to mitigate what it describes as “a perfect storm” for many vulnerable economies.

    The report stresses that as the world stares down the possibility of a widespread recession, the urgency for cohesive, multilateral solutions has never been greater.

    In another report, also released last week, UNCTAD urged the United States to avoid dragging the world’s most vulnerable economies into its escalating trade war with China, warning that steep new tariffs would do disproportionate harm to the Least Developed Countries (LDCs) and Small Island Developing States (SIDS) – while providing negligible economic benefit to the US.

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    South Asia: Caught in the Crossfire

    UNCTAD’s report paints a bleak picture of the global economic landscape. “Concerns over economic policy shifts have reached the highest level this century,” it states, highlighting that trade policy shocks, financial market volatility, and a global surge in uncertainty are delaying investment decisions and reducing job creation.

    “Trade policy uncertainty is at a historical highs,” the report emphasises, noting that disruptions to global supply chains and the unpredictability of tariffs and sanctions are having a chilling effect on cross-border trade and investment. These developments are already translating into delayed investment decisions and reduced hiring, the report warns.

    The report says, “….elevated policy uncertainty and subsequent delays in investment and hiring decisions will have a dampening effect on both employment and household incomes.”

    The economic strain is being acutely felt in South Asia, where countries like Sri Lanka, Pakistan, Bangladesh, Nepal, and the Maldives are grappling with debt distress, volatile food prices, and reduced access to international finance.

    “Many low-income countries face a perfect storm of worsening external financial conditions, unsustainable debt, and weakening domestic growth,” the report notes. In particular, Sri Lanka’s debt-laden economy took a further hit earlier this month when US President Donald Trump imposed a 44 per cent tariff on its exports – Sri Lanka’s largest market – before announcing a 90-day suspension of the measure.

    With annual exports to the US worth approximately $2.9 billion, the impact of such trade restrictions could be devastating. Bangladesh and Pakistan are also on alert, with financial vulnerabilities making them increasingly susceptible to global market shocks and policy changes in developed economies.

    South-South Trade Offers a Ray of Hope

    The recessionary trajectory is expected to affect all nations, but the impact will be disproportionately severe for developing economies. UNCTAD identifies these nations as particularly vulnerable due to their dependency on external financing and commodity exports, which are often subject to dramatic price fluctuations.

    For many low- and middle-income countries, the prospect of debt default is rising as capital flows reverse and borrowing costs escalate in a tightening global financial environment.

    UNCTAD projects that the South Asia region will expand by 5.6 per cent in 2025, as declining inflation opens the way for monetary loosening across most of the region. “Nevertheless, food price volatility will remain a risk and complex debt dynamics will continue to burden economies such as Bangladesh, Pakistan and Sri Lanka,” it says.

    UNCTAD estimates that India will grow by 6.5 per cent in 2025 on the back of continued robust public spending and ongoing monetary easing. The decision of the central bank to cut the interest rate by 25 basis points for the first time in five years in early February will support household consumption as well as provide a boost to private investment plans.

    Despite the grim outlook, the report identifies emerging opportunities in the form of growing South-South trade and deeper regional economic integration. Trade between developing countries now constitutes nearly one-third of global trade—a significant buffer in a world increasingly fractured by geopolitical and economic rivalries.

    “The potential of South-South economic integration offers opportunities for many developing countries,” UNCTAD notes. Regional frameworks such as the African Continental Free Trade Area (AfCFTA), ASEAN Economic Community, and the South Asian Free Trade Area (SAFTA) are poised to play a greater role in insulating economies from external shocks.

    According to the report, these initiatives can facilitate intra-regional investment, enhance supply chain resilience, and promote inclusive growth, provided they are supported by stable macroeconomic policies and multilateral cooperation.

    Recession Risks

    As global trade becomes more fragmented, UNCTAD is urging governments to adopt a more coordinated and cooperative approach. The organisation calls for international dialogue and negotiation to defuse rising tensions and ensure that development progress in the Global South is not undone.

    “Coordinated action will be essential to restore confidence and keep development on track,” the report states, calling for renewed commitment to multilateralism and regional collaboration. Without decisive action, the world risks a deeper and more prolonged recession, with long-term consequences for poverty reduction, investment, and global stability.

    The report underscores that while recession is not yet universal, the convergence of trade wars, debt crises, and financial volatility is creating a synchronized global slowdown. Delayed investment, reduced hiring, and strained public budgets are not only economic risks—they also pose social and political dangers, particularly in fragile states.

    With advanced economies like the United States, European Union, and China embroiled in trade disputes and pursuing divergent monetary policies, the risk of global economic fragmentation is rising. For developing nations, particularly in South Asia and sub-Saharan Africa, the way forward lies in leveraging regional strengths, diversifying trade partnerships, and investing in sustainable infrastructure and digital connectivity.

    UNCTAD concludes its report with a cautionary note: “The global economy is under pressure, and the path ahead requires a shared vision and collective resolve to avoid the pitfalls of isolationism and economic nationalism.”

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