Remarkable levels of trade tensions and policy uncertainties have weakened the global economic outlook for the year, with devastating outcomes for countries across profiles, the United Nations Department of Economic and Social Affairs (UNDESA) warned in its new report. The situation will deal a major blow to developing and least-developed countries, threatening to erase their development progress and pushing them deeper into the debt crisis, the World Economic Situation and Prospects as of mid-2025 underlined.
"The recent surge in tariffs — driving the effective US tariff rate up steeply — threatens to raise production costs, disrupt global supply chains and amplify financial turbulence," UNDESA noted.
The situation is causing businesses to become jittery and postpone or withdraw investment commitments, leading to an economic slowdown.
Growth in least developed countries is expected to slow to 4.1 per cent in 2025 from 4.5 per cent last year, according to the report. A decline in revenue from exports, tightening financial conditions and lower official development assistance may shrink their fiscal space and make them more vulnerable to debt stress, the economic affairs department of UN flagged.
The global economic landscape is already fragmented and, with multilateral trading systems experiencing further strain, small and vulnerable economies may be pushed to a corner. To avoid this, UNDESA called for bolstering multilateral cooperation.
Inflation has been reducing globally but the tariff wars and breakdown of supply chains due to geopolitical tensions and conflicts may cause this trend to reverse. The several months of inflation surge since the COVID-19 pandemic has been a massive blow to food security, the authors noted. "Structural and emerging factors—including climate shocks, currency depreciation, supply chain disruptions and rising trade protectionism—have pushed food inflation above headline inflation."
Countries, including India, where food is a major share of household consumption, have been particularly affected. The worst-hit will be countries that were already food insecure before the pandemic and Russia-Ukraine war, as well as those currently experiencing conflict and climate-related disruptions. "Globally, around 343 million people are now facing acute food insecurity, with 1.9 million at risk of famine — primarily in conflict-affected areas like Gaza, Haiti, Mali, South Sudan and Sudan."
Further the impact of inflation has been disparate, the authors observed, with rate of consumer price increase in developing countries soaring way past that in developed nations. "Between 2020 and 2024, consumer prices rose cumulatively by around 20 per cent in developed economies and 35 per cent in developing economies — substantially exceeding the increased of the previous five-year period. Africa, South Asia and Western Asia experienced particularly strong price increases in recent years."
Even within countries, the analysts noted a large disparity in inflation impact, with the poorest households often seeing consumption cost increase more than those earning the highest. This can be attributed to "differences in consumption patterns as essential goods and services — on which poorer households spend a larger share of their income — recorded some of the steepest price increases".
Global gross domestic product (GDP) growth forecast has been corrected to just 2.4 per cent in 2025, down from 2.9 per cent in 2024 and 0.4 percentage points below the January 2025 projection. For India's economy, growth is projected at 6.3 per cent, down from 7.1 per cent in 2024. The country remains one of the fastest growing large economies, according to the report.
GDP growth in the US is projected to decelerate significantly to 1.6 per cent in 2025 from 2.8 per cent in 2024; that in the European Union is expected to remain unchanged at 1 per cent; China’s is expected to slow to 4.6 per cent.
Several other major developing economies, including Brazil, Mexico and South Africa, are also facing growth downgrades due to weakening trade, slowing investment and falling commodity prices.
"Revitalising the rules-based trading system and providing targeted support to vulnerable countries will be critical to fostering sustainable and inclusive development," the authors of the report highlighted.
They added that the Fourth International Conference on Financing for Development to be held in Sevilla, Spain from June 30-July 3, 2025 will be an important stage to address these issues and work towards debt sustainability.