UN Warns of Slower Global Growth Amid Trade Tensions and Fiscal Strains

In 2025, unexpected resilience to sharp increases in US tariffs, supported by solid consumer spending and easing inflation, helped sustain growth, according to the latest United Nations report.

However, underlying weaknesses persist.

Subdued investment and limited fiscal space are weighing on economic activity, raising the prospect that the world economy could settle into a persistently slower growth path than in the pre-pandemic era, the UN report has asserted.

The report notes that a partial easing of trade tensions helped limit disruptions to international commerce.

However, the impact of higher tariffs, coupled with elevated macroeconomic uncertainties, is expected to become more evident in 2026.

Financial conditions have eased amid monetary loosening and improved sentiment, but risks remain high given stretched valuations--especially in sectors linked to rapid advances in artificial intelligence.

Meanwhile, high debt levels and borrowing costs are constraining policy space, especially for many developing economies.

"A combination of economic, geopolitical and technological tensions is reshaping the global landscape, generating new economic uncertainty and social vulnerabilities," said United Nations Secretary-General Antonio Guterres. "Many developing economies continue to struggle and, as a result, progress towards the Sustainable Development Goals remains distant for much of the world."

Economic growth in the United States is projected at 2.0 per cent in 2026, compared to 1.9 per cent in 2025, supported by monetary and fiscal easing. However, a softening labour market will likely weigh on momentum.

In the European Union, economic growth is forecast at 1.3 per cent in 2026, down from 1.5 per cent in 2025, as higher US tariffs and ongoing geopolitical uncertainty dampen exports.

Output in Japan is expected to expand by 0.9 per cent in 2026, compared with 1.2 per cent in 2025, with a modest domestic recovery partly offsetting weaker external conditions.

In the Commonwealth of Independent States and Georgia, growth is projected at 2.1 per cent in 2026, mostly unchanged from 2025, even as the war in Ukraine continues to weigh on macroeconomic conditions.

In East Asia, growth is projected at 4.4 per cent in 2026, down from 4.9 per cent in 2025 as the boost from front-loaded exports fades.

China's economy is expected to grow by 4.6 per cent, slightly lower than in 2025, supported by targeted policy measures.

In South Asia, growth is forecast at 5.6 per cent in 2026, easing from 5.9 per cent, led by India's 6.6 per cent expansion, driven by resilient consumption and substantial public investment.

In Africa, output is projected to grow by 4.0 per cent in 2026, marginally up from 3.9 per cent in 2025. However, high debt and climate-related shocks pose significant risks.

In Western Asia, GDP is expected to grow by 4.1 per cent in 2026, up from 3.4 per cent in 2025, yet the region remains exposed to geopolitical tensions and security risks.

In Latin America and the Caribbean, output is expected to expand by 2.3 per cent in 2026, slightly down from 2.4 per cent in 2025, amid moderate growth in consumer demand and a mild recovery in investment.

Global trade proved resilient in 2025, expanding by a faster-than-expected 3.8 per cent despite elevated policy uncertainty and rising tariffs. The expansion was driven by the front-loading of shipments early in the year and robust growth in services trade. However, momentum is expected to ease, with trade growth projected to slow to 2.2 per cent in 2026.

At the same time, investment growth has remained subdued in most regions, weighed down by geopolitical tensions and tight fiscal conditions. Monetary easing and targeted fiscal measures have supported investment in some economies, while rapid advances in artificial intelligence fuelled pockets of strong capital spending in a few large markets. The report cautions, however, that the potential gains from AI, when realised, are likely to be unevenly distributed, risking a widening of existing structural inequalities.

The report also underscores that high prices remain a key global challenge even as disinflation continued. Headline inflation declined from 4.0 per cent in 2024 to an estimated 3.4 per cent in 2025 and is projected to slow further to 3.1 per cent in 2026. While overall inflation has moderated, elevated prices continue to weigh on real incomes.

"Even as inflation recedes, high and still rising prices continue to erode the purchasing power of the most vulnerable," said Li Junhua, United Nations Under-Secretary-General for Economic and Social Affairs.

"Ensuring that lower inflation translates into real improvements for households requires safeguarding essential spending, strengthening market competition, and tackling the structural drivers of recurring price shocks."

- ANI