The global economy is moving from an initial phase of supply disruptions and inflation into a more fragile period, where prolonged uncertainty could trigger shortages and wider financial stress, says UN trade and development agency Unctad.

While recent years saw trade tensions and policy uncertainty, geopolitical risks are now becoming the dominant source of instability for the global economy, the Unctad ‘Trade and Development Foresights 2026: Global economy faces a geopolitical challenge’ report shows.

Global growth is projected to slow to 2.6% this year from 2.9% in 2025, as higher energy prices, transport disruptions, market volatility and the search for financial safe assets weigh on investment and demand.

Further, the global merchandise trade remained relatively strong through early 2026, but much of the momentum was concentrated in AI-related products, such as semiconductors, servers and data-processing equipment.

Outside these sectors, trade growth remained more modest, especially in traditional industries and commodity-linked sectors, the report shows.

Global merchandise trade growth is now projected to slow to between 1.5% and 2.5% this year, from 4.7% in 2025, as uncertainty and geopolitical tensions affect supply chains, shipping and investment decisions.

Developing economies are especially exposed. Many face rising bills for fuel, food and fertilisers, while also dealing with currency pressure, tighter financing conditions and weaker investor sentiment.

Much of the resilience seen in 2025 was driven by the growing role of developing economies in global trade and growth. Prolonged instability now risks undermining that momentum, Unctad says in the report.

Further, the report points to increasing pressure on global food systems. Higher energy prices are driving up fertiliser costs and adding to food inflation pressures across many developing economies.

Simultaneously, volatility and tighter financing conditions are exposing vulnerabilities across global food trading systems.

Financial stress among major food trading firms could amplify food security risks if disruptions persist, adding pressure on governments already facing limited fiscal space.

Food security is no longer only about availability and prices. It is increasingly also a financial stability concern, especially for governments already facing higher debt-servicing costs, Unctad says.

However, there are practical ways to strengthen resilience.

Renewable energy is becoming increasingly cost-competitive and strategically important for reducing exposure to fossil fuel shocks. But investment remains highly uneven, limiting the ability of many developing economies to benefit.

“Unctad calls for stronger international cooperation, more predictable trade conditions, greater financial safeguards for developing economies and faster investment in affordable clean energy to stabilise growth and reduce vulnerability to future shocks.”