(MENAFN) The UN Trade and Development Organization (UNCTAD) forecasted Wednesday that worldwide economic expansion may decelerate to 2.6% in 2025, citing heightened financial instability and escalating geopolitical friction, while emphasizing the urgent need for financial system reforms to better support real economic activity.

UNCTAD released its Trade and Development Report 2025, stating: "On the surface, global trade looks resilient. Goods are moving, supply chains are adapting, and trade grew about 4% in early 2025 – even amid tariff hikes and geopolitical tensions."

The services sector exhibited stronger performance, fueled by digital economy expansion and artificial intelligence integration, while commerce among developing nations surged beyond typical rates, the report revealed.

However, policy unpredictability now represents a chronic obstacle to commerce, investment, and development, with financial disruptions quickly cascading into tangible economic consequences and structural weaknesses materializing across the international economic framework, the document warned. With over 90% of worldwide trade reliant on financing mechanisms, this dependency simultaneously creates opportunities while magnifying systemic fragilities.

Financial turbulence and geopolitical uncertainty are placing mounting strain on international commerce and capital investment.

These conditions are expected to drag economic growth downward from 2.9% in 2024 to 2.6% this year, according to UNCTAD's projections.

The organization emphasized that as globalization undergoes transformation driven by geopolitical uncertainties and policy modifications, financial infrastructure must evolve to adequately support productive economic activity.

UNCTAD Secretary-General Rebeca Grynspan remarked: "Trade is not just the concatenation of suppliers. It is also the concatenation of credit lines, payment systems, currency markets and capital flows."

Emerging markets confront the most severe financial and climate-related hazards.

Developing economies, which face greater vulnerability to financial system shocks, are anticipated to expand 4.3% faster than their developed counterparts.

Nevertheless, emerging nations grapple with obstacles including elevated financing expenses, heightened susceptibility to abrupt capital flow reversals, and amplified financial threats stemming from climate transformation. These elements constrain the fiscal capacity and investment resources necessary for sustained expansion.

The Global South—comprising developing regions across Africa, Asia, and South America—generates over 40% of worldwide output, commands nearly half of merchandise trade, and attracts more than half of international investment inflows. Yet their participation in financial markets remains disproportionately minimal.

When China is excluded, developing countries account for merely 12% of global stock market capitalization and 6% of bond issuance.

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