GENEVA -- Global growth will slow to 2.6 percent in 2025, down from 2.9 percent in 2024, due to growing pressure from financial volatility and geopolitical uncertainty facing global trade and investment, the United Nations Trade and Development (UNCTAD) said in a report released on Tuesday.

The UNCTAD's Trade and Development Report 2025 shows that shifts in financial markets affect global trade almost as strongly as real economic activity, influencing development prospects worldwide, said the UN trade body.

The report said that despite potential gains from new technologies like artificial intelligence, global growth is projected to remain subdued in 2026, at 2.6 percent.

UNCTAD said that its projection was based on a global growth aggregate using market exchange rate (MER) weights rather than purchasing power parity (PPP) weights used by OECD, with the latter leading to a higher global growth forecast. The OECD on the same day predicted that global GDP growth will slow from 3.2 percent in 2025 to 2.9 percent in 2026.

UNCTAD Secretary-General Rebeca Grynspan said the findings show how financial conditions increasingly determine the direction of global trade. "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 said developing economies are forecast to grow by 4.3 percent in 2025, significantly faster than advanced economies.

However, factors such as higher financing costs, greater exposure to sudden shifts in capital flows and rising climate-related financial risks limit the fiscal and investment space that developing economies needed to sustain growth.

The report noted that many developing economies with small domestic financial markets rely on external borrowing at significantly higher rates of 7 to 11 percent, compared with 1 to 4 percent in major advanced economies.

In addition, climate vulnerability adds to financial pressures, with countries repeatedly exposed to extreme weather paying an estimated 20 billion U.S. dollars more each year in interest.

UNCTAD called for a set of reforms to reduce financial vulnerability, improve predictability and support stronger alignment between trade, finance and development.

These measures cover trade rules, statistics, the international monetary system, as well as capital markets, among other aspects.