The global economy faces challenges in 2025. According to the United Nations Conference on Trade and Development (UNCTAD), growth is projected to slow to a mere 2.3 per cent. This downturn is attributed to escalating trade tensions, financial volatility, and increasing uncertainty. The situation is particularly dire for developing countries, which are expected to suffer the most from these economic pressures.
Key Factors Behind Economic Slowdown
The UNCTAD report identifies several factors contributing to the economic slowdown. Trade tensions have escalated globally, leading to unpredictable tariffs that disrupt supply chains. This uncertainty has caused businesses to delay investment decisions and reduce hiring. Financial volatility further exacerbates the situation, making it difficult for economies to stabilise.
Impact on Developing Countries
Developing nations are particularly vulnerable. Many are experiencing weakening domestic growth and worsening external financial conditions. Rising debt burdens add to the challenges, creating what UNCTAD describes as a perfect storm for low-income countries. These vulnerabilities threaten to reverse progress made in development and poverty alleviation.
Shifts in Development Financing
There has been a noticeable shift in fiscal priorities among major economies. Increased defence spending has diverted resources away from official development assistance and social investment. This change could undermine efforts to achieve the Sustainable Development Goals (SDGs), which are crucial for global development.
Resilience Through South-South Trade
Despite the bleak outlook, there are signs of resilience. Trade among developing countries, known as South-South trade, has been steadily increasing. This now accounts for approximately one-third of global trade. Enhanced regional integration and cooperation within the global South could provide a vital buffer against the economic turbulence anticipated in the coming years.
The Need for International Coordination
To mitigate the risks associated with economic fragmentation and geoeconomic tensions, UNCTAD calls for renewed international dialogue. Stronger coordination of both regional and global economic policies is essential. Coordinated action is necessary to restore confidence and maintain development momentum.
Questions for UPSC:
- Examine the impact of trade tensions on global supply chains and economic stability.
- Discuss the consequences of shifting fiscal priorities on Sustainable Development Goals.
- Critically discuss the role of South-South trade in enhancing economic resilience among developing countries.
- With suitable examples, analyse the effects of financial volatility on investment decisions in emerging economies.
Answer Hints:
1. Examine the impact of trade tensions on global supply chains and economic stability.
- Trade tensions lead to unpredictable tariffs, disrupting established supply chains.
- Increased costs and delays in production result from these disruptions.
- Businesses face uncertainty, leading to delayed investment and hiring decisions.
- Global interconnectedness means that instability in one region can affect others.
- Long-term economic stability is threatened as companies seek to diversify supply sources.
2. Discuss the consequences of shifting fiscal priorities on Sustainable Development Goals.
- Increased defence spending diverts resources from development assistance and social programs.
- Reduced funding hampers progress towards achieving the SDGs, especially in health and education.
- Low-income countries face greater challenges in addressing poverty and inequality.
- Shifts can lead to increased social unrest and instability in vulnerable regions.
- Long-term development goals may be jeopardized, reversing previously made gains.
3. Critically discuss the role of South-South trade in enhancing economic resilience among developing countries.
- South-South trade has grown to represent one-third of global trade, indicating increased interdependence.
- This trade encourages economic cooperation and integration among developing nations.
- Resilience is enhanced as countries can rely on each other amid global market volatility.
- It promotes diversification of trade partners, reducing dependency on developed economies.
- Regional integration can lead to improved infrastructure and shared resources, strengthening economies.
4. With suitable examples, analyse the effects of financial volatility on investment decisions in emerging economies.
- Financial volatility leads to increased uncertainty, causing investors to hesitate.
- Examples include fluctuating currency values, which affect profitability and risk assessments.
- Emerging markets may see capital flight as investors seek stability elsewhere.
- Delayed investments can hinder growth, as seen in countries like Argentina during economic crises.
- Long-term projects may be abandoned, leading to reduced infrastructure development and job creation.
