The world economy is on a recessionary trajectory as global growth is projected to slow to 2.3% in 2025, the UN Trade and Development (UNCTAD) alerts in its new report out this week. It cites mounting threats including trade policy shocks, financial volatility and a surge in uncertainty that is already translating into delayed investment decisions and reduced hiring. This slowdown will affect all nations, but UNCTAD is most concerned about developing countries where it poses a real threat to economic growth, investment, and development progress. Many low-income countries face a “perfect storm” of worsening external financial conditions, unsustainable debt and weakening domestic growth.
However, there are some bright spots in the report as UNCTAD points to the growth of trade among developing countries (South-South trade) as 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. A similar message was also conveyed by World Bank President Ajay Banga, who noted that global trade had nearly quadrupled over the past two decades, with developing countries nearly doubling their share of that trade to two-fifths. Banga also urged developing countries to liberalize trade. “Many developing economies still maintain higher tariffs than advanced economies,” Banga said. “I think that creates a real risk of reciprocal tariffs and, most importantly, lost competitiveness.”
Asked about huge cuts to foreign development aid by the Trump administration and some European countries, Banga said it was critical to note that foreign aid was intended as temporary help, not a long-term strategy. Developing countries needed to create the right regulatory framework to encourage private sector investments that could boost job creation. The World Bank is continuing focus on job creation, noting that some 1.2 billion young people were expected to enter the workforce in developing nations over the next decade, but only 420 million jobs were on the horizon.
Discussion Questions:
1. Discuss how more advanced economies can both help encourage and deter the economic growth of less developed nations and give examples of both.
2. Discuss both some of the obstacles that exist to economic development and some of the opportunities to foster economic growth, including the need for a robust legal framework.
Sources| Reuters: https://www.reuters.com/markets/world-banks-banga-urges-developing-nations-lower-tariffs-focus-regional-trade-2025-04-16; UNCTAD: https://unctad.org/news/global-economy-under-pressure-could-slow-23-signals-un-trade-and-development; Unsplash: Photo by Nathan Cima on Unsplash