LONDON, Dec 2 (Reuters) – The financial system risks undermining global trade if it fails to adapt to the economy’s needs, with developing countries likely to suffer the most, the UN Trade and Development Agency said on Tuesday. A UNCTAD report presented in London said shifts in financial markets now drive global trade almost as […]
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Global financial system must adapt to better serve economy, UN trade agency says
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LONDON, Dec 2 (Reuters) – The financial system risks undermining global trade if it fails to adapt to the economy’s needs, with developing countries likely to suffer the most, the UN Trade and Development Agency said on Tuesday.
A UNCTAD report presented in London said shifts in financial markets now drive global trade almost as much as real economic activity, with financial conditions increasingly determining global trade flows and shaping development prospects worldwide.
“Trade is not just a chain of suppliers. It is also a chain of credit lines, payment systems, currency markets and capital flows,” UNCTAD’s Secretary-General Rebeca Grynspan said in a news release.
The UNCTAD said global growth was expected to slow from 2.9% in 2024 to 2.6% in 2025 due to rising financial volatility but also geopolitical tensions.
More than 90% of global trade relies on bank financing, with dollar liquidity and cross-border payment systems remaining essential to international commerce.
“This deep reliance on financial channels makes trade closely linked to global financial and monetary conditions,” the report said. “A shift in interest rates or investor sentiment in a major financial centre can affect trade volumes worldwide.”
The report said although developing economies are expected to grow faster than advanced ones, they face higher financing costs, volatile capital flows, and rising climate-related risks, factors that constrain the fiscal and investment space needed to sustain growth.
The dollar remains central to global finance. While this offers stability in uncertain times, it also ties developing economies to financial cycles they have little power to influence, the agency said.
UNCTAD called for reforms to align trade and finance and ensure long-term stability, including modernising trade rules, reforming the international monetary system to limit damaging currency and capital-flow volatility, and strengthening capital markets to expand affordable long-term finance.
“What does genuine resilience require? Integrated policy frameworks that recognise links between trade, finance and sustainability,” Grynspan said. “Fundamentally, we cannot understand trade isolated from finance.”
(Reporting by Catarina Demony; Editing by Sharon Singleton)