UNCTAD Warns Financial Volatility Could Push Global Trade “on the Brink,” Developing Countries Most at Risk

Geneva, Switzerland| UN Trade and Development (UNCTAD) reports that the world economy is progressively exposed to financial volatility and geopolitical uncertainty, which is increasingly disruptive to international trade.UN Trade and Development (UNCTAD) estimate that the international economy is undergoing an increasing threat due to financial and geopolitical uncertainty that is increasingly affecting international trade.

 UNCTAD, in its new flagship report, Trade and Development Report 2025: On the Brink – Trade, Finance, and the Reshaping of the Global Economy, cautions that the financial turmoil may expose global trade and development to precarity, with developing countries being the worst affected.

UNCTAD predicts that the world will grow at a rate of 2.6% in 2025, compared to 2.9% in 2024, as trade, investment, and supply chains will face pressure due to the tightening of financial conditions and underlying policy ambiguity.

UNCTAD Secretary-General Rebeca Grynspan emphasized that modern trade is no longer shaped only by physical supply chains.“Trade is not just a chain of suppliers. It is also a chain of credit lines, payment systems, currency markets, and capital flows,” she said.

The report indicates that the movements of financial markets have taken an almost equivalent strength over global trade flows as to actual economic activity, redefining the future of development around the globe.

Global trade increased by almost 4% in early 2025, which was partly due to the companies speeding up their imports in advance of the expected changes in tariffs. However, underlying trade growth is estimated at 2.5–3% and is expected to weaken further as financial conditions increasingly affect production and investment decisions.

Structural shifts continue to reshape global trade, with services trade expanding faster than goods, supported by digitalization and artificial intelligence; South–South trade growing above the global average; and greater sensitivity of trade flows to interest rates, currency movements and investor sentiment.

Approximately 90 percent of international business relies on trade finance, and access to cheap credit and dollar liquidity is a necessity in international business. UNCTAD cautions that any sudden fluctuations in interest rates or money sentiment in the leading economies may quickly be transferred to the world trade volumes.

In the case of the developing countries, with high costs of financing and limited access to credit, financial shocks may disrupt otherwise sound trade deals, in direct proportion to exports, imports and maritime supply chains.The report also draws attention to the growing financialization of commodity markets, particularly in global food systems. For several major food trading firms, over 75% of income now comes from financial operations, rather than the physical movement of goods—raising concerns over price volatility and food security.

Developing economies are expected to grow by 4.3%, significantly faster than advanced economies. However, they face higher borrowing costs, greater exposure to capital flow reversals, and rising climate-related financial risks.Although the global South accounts for over 40% of world output, nearly half of global merchandise trade, and more than 50% of global investment inflows, its share in global financial markets remains limited. Excluding China, developing countries represent only 12% of global equity market value and 6% of global bond issuance.

Many developing countries borrow at interest rates of 7–11%, compared with 1–4% in advanced economies, costs that UNCTAD says reflect structural weaknesses in the international financial system rather than economic fundamentals.

Climate vulnerability further amplifies financing challenges. Countries frequently exposed to extreme weather events now pay an estimated US$20 billion more annually in interest costs due to higher perceived risk. These premiums have been received since 2006, equating to approximately US$212 billion of money spent on development and climate adaptation. This makes the developing economies stable during crises; however, it also opens them to the swings and falls of financial cycles, which they have no control over.

UNCTAD recommends coordinated reforms to bring about stability and sustainable development that would include repairing the multilateral trade dispute settlement system; revising trade rules on services, digital trade, and climate policies; bridging data gaps in trade and investment statistics; reforming the international monetary system, to ensure less volatility in currency and capital flows; reinforcing regional and domestic capital markets; providing access to relatively low-priced trade finance, especially to small business; and enhancing transparency in the global commodity trading.

Despite the gradual diversification of reserves, the US dollar remains dominant in global finance. It has grown its global payment volume through SWIFT by 39% to an almost fifty percent ratio in the last five years.

Rebeca Grynspan concluded that long-term resilience depends on integrated policymaking.“We cannot understand trade in isolation from finance. Coordinated reforms can restore stability and place development back at the center of the global economy”.

Source: UN Trade and Development (UNCTAD), Trade and Development Report 2025