The global economy is teetering on the edge of a recession in 2025, as escalating trade wars and mounting policy uncertainty threaten to derail growth worldwide.
According to alarming new forecasts published by United Nations Conference on Trade and Development (UNCTAD), the worldwide growth is expected to slump to a mere 2.3 per cent.
Alongside this gloomy outlook, the World Trade Organisation (WTO) delivered its own sobering assessment, slashing its global trade forecast from 3.0 per cent growth to a 0.2 per cent contraction this year – the first decline since the pandemic shattered supply chains in 2020.
It warns that ongoing tariff escalations and policy uncertainty could deepen the contraction to as much as 1.5 per cent, with particularly severe consequences for developing economies reliant on export markets.
UNCTAD's latest projection of 2.3 percent growth in 2025 slipping below the critical 2.5 per cent threshold often signals a global recessionary phase thus marking a significant deceleration from the 2.8 per cent growth recorded in 2024 and reflects a broader trend of subdued expansion that predated the pandemic but has been exacerbated by recent trade conflicts.
Trade Wars and Market Volatility
The roots of this looming crisis lie in 2 April announcement by US president Donald Trump of sweeping new tariffs sending shockwaves through financial markets. The so-called "fear index" tracking market volatility has rocketed to its third-highest level in history, exceeded only during the 2008 financial crash and the pandemic's darkest days.
Across major economies, the growth picture appears increasingly bleak. The US faces the steepest decline, with expansion forecast to nosedive from 2.8 per cent to just 1 per cent. China's growth is expected to moderate from 5 per cent to 4.4 per cent, while India – though maintaining relatively robust performance – will likely see growth ease from 6.9 per cent to 6.5 per cent.
The European Union represents a rare bright spot, though "bright" might be overstating it – growth is projected to inch up from 0.9 per cent to 1 per cent, hardly cause for celebration.
UNCTAD estimates that growth in the euro area will remain subdued, at 0.8 per cent in
2025. Further monetary easing is expected through 2025 as inflation continues to decline.
However, domestic demand, particularly private fixed investment, remains sluggish. The
manufacturing sector's ongoing struggles amid increased global competition in key export
sectors, elevated domestic energy prices and a volatile external environment will weigh on
growth.
For Britain, which has been grappling with its own economic challenges, the darkening global outlook could hardly come at a worse time. The country's export-dependent businesses already face headwinds from post-Brexit trade friction with Europe. UNCTAD goes on to add that its economy will show a marginal decline in growth to 1.0 per cent in 2025. Private consumption will provide the main impetus, while overall investment will continue to lag, despite an expected boost from public capital expenditures.
The Threat of Economic Decoupling
Perhaps most concerning is the potential "decoupling" of the world's two largest economies. The WTO estimates merchandise trade between the US and China will plummet by a staggering 81 per cent – a figure that could have reached 91 per cent without recent exemptions for products like smartphones.
Such a division could eventually carve the global economy into two isolated geopolitical blocs, potentially shrinking worldwide GDP by 7 per cent – what WTO Director-General Ngozi Okonjo-Iweala described as "significant and substantial" damage.
This fragmentation threatens to unravel decades of globalization and could lead to a more volatile and less predictable international trade environment.
Resilience Amidst Uncertainty
Despite the bleak outlook, some resilience factors offer cautious optimism. Trade among developing countries-known as South South trade - continues to grow steadily, now accounting for about one-third of global trade flows. This growing economic integration among developing nations could provide a buffer against external shocks.
Services trade also shows greater resilience compared to merchandise trade, with the WTO forecasting a 4 per cent growth in commercial services in 2025, even as goods trade contracts. Furthermore, some countries outside the US-China sphere may benefit by filing supply gaps in key sectors such as textiles, clothing, and electrical equipment.
The Human Cost and Road Ahead
For ordinary people worldwide, these economic tremors translate into real hardships-job insecurity, rising costs of goods, and uncertainty about retirement savings.
The coming months will be critical as the global economy is metaphorically walking a tightrope over a chasm, where one misstep could trigger a downturn far worse than the pandemic shock of 2020. Coordinated multilateral action, strengthened trade relationships, and renewed international dialogue are urgently needed to restore confidence and stability.
As Richard Kozul-Writh of UNCTAD warns, the current pressures represent not just a cyclical slowdown but a fundamental reshuffling of the global economic order, with consequences that will reverberate for decades.
The year stands as a pivotal year for the global economy, caught between the forces of fragmentation and integration, The choices made by governments and businesses in the face of trade tensions and uncertainty will determine whether the world slips into recession or charts a course toward renewed and inclusive growth.
