Pakistan is expected to experience “moderate growth, stabilising after a period of economic contraction”, with its Gross Domestic Product (GDP) projected to expand by 2.3 per cent in 2025, according to a major United Nations report.
The report, titled ‘The UN World Economic Situation and Prospects 2025’ and released a day ago, noted that declining inflation has allowed most of the South Asian region’s central banks to commence or continue monetary easing in 2025. Meanwhile, Pakistan, Bangladesh and Sri Lanka are expected to continue fiscal consolidation and economic reforms under International Monetary Fund programmes.
Dr Aneel Salman, chair of Economic Security at Islamabad Policy Research Institute, told Dawn.com that the UN’s revised growth forecast for Pakistan reflected a “fragile yet stabilising recovery” after a prolonged period of economic distress.
“Inflation has come down sharply, reaching 0.3pc in April 2025, offering some relief to households and opening the door for improved consumer and business confidence. However, growth remains modest, limited by deep-rooted structural problems, narrow fiscal space and a heavy external debt burden that restricts economic flexibility. The International Monetary Fund (IMF) programme has restored some macroeconomic discipline, but the price has been steep, with fiscal tightening weighing down short-term growth.
“Globally, economic slowdown, weaker trade and the after-effects of tariff pressures continue to impact Pakistan’s exports and investment climate. The risks from regional tensions also remain real,” he said.
Salman added that despite the above, there was room for “cautious optimism”.
Elaborating, he said: “Pakistan’s economy is resilient, and I believe it can do better than the UN’s projections. What is needed now is a shift in focus from mere stabilisation to real economic renewal, driven by productivity, energy sector reform, and the digital economy. The road ahead is difficult, but the outcome is still in our hands.”
The UN report said that the near-term outlook for South Asia was expected to remain robust, with growth projected at 5.7pc in 2025 and 6pc in 2026, “driven by strong performance in India as well as economic recovery in a few other economies”, including Bhutan, Nepal and Sri Lanka.
The report said the global economy was at a precarious juncture, marked by heightened trade tensions and elevated policy uncertainty. The recent surge in tariffs — driving the effective US tariff rate up steeply — threatens to raise production costs, disrupt global supply chains and amplify financial turbulence.
Uncertainty over trade and economic policies, combined with a volatile geopolitical landscape, is prompting businesses to delay or scale back critical investment decisions. These developments are compounding existing challenges, including high debt levels and sluggish productivity growth, further undermining global growth prospects.
Global GDP growth is now forecast at just 2.4pc in 2025, down from 2.9pc in 2024 and 0.4 percentage points below the January 2025 projection.
Slower global growth, elevated inflationary pressures and weakening global trade, including a projected halving of trade growth from 3.3pc in 2024 to 1.6pc in 2025, jeopardise progress toward the Sustainable Development Goals.
The slowdown is broad-based, affecting both developed and developing economies. Growth in the US is projected to decelerate significantly, from 2.8pc in 2024 to 1.6pc in 2025, with higher tariffs and policy uncertainty expected to weigh on private investment and consumption. In the European Union, GDP growth is forecast at 1pc in 2025, unchanged from 2024, amid weaker net exports and higher trade barriers.
China’s growth is expected to slow to 4.6pc this year, reflecting subdued consumer sentiment, disruptions in export-oriented manufacturing and ongoing property sector challenges. Several other major developing economies, including Brazil, Mexico and South Africa, are also facing growth downgrades due to weakening trade, slowing investment and falling commodity prices. India, whose 2025 growth forecast has been revised downward to 6.3pc, remains one of the fastest-growing large economies.
“The tariff shock risks hitting vulnerable developing countries hard, slowing growth, slashing export revenues, and compounding debt challenges, especially as these economies are already struggling to make the investments needed for long-term, sustainable development,” said United Nations Under-Secretary-General for Economic and Social Affairs Li Junhua.
While global headline inflation eased from 5.7pc in 2023 to 4pc in 2024, price pressures remain stubbornly high in many economies. By early 2025, inflation exceeded pre-pandemic averages in two-thirds of countries, with over 20 developing economies facing double-digit rates.
Food inflation, averaging above 6pc, continues to hit low-income households hardest, particularly in Africa, South Asia and Western Asia. Higher trade barriers and climate shocks are further amplifying inflation risks, underscoring the need for coordinated policies combining credible monetary frameworks, targeted fiscal support and long-term strategies to stabilise prices and shield the most vulnerable.
In many countries, monetary policy challenges have intensified in an uncertain economic environment. Central banks are grappling with difficult trade-offs between managing inflationary pressures exacerbated by tariff-induced price shocks and supporting slowing economies. At the same time, limited fiscal space, especially in developing economies, constrains governments’ ability to effectively mitigate the economic slowdown.
Deteriorating global prospects and geopolitical fragmentation undermine development progress
For many developing countries, this bleak economic outlook undermines prospects for creating jobs, reducing poverty, and addressing inequality. For least developed countries where growth is expected to slow from 4.5pc in 2024 to 4.1pc in 2025, declining export revenues, tightening financial conditions and reduced official development assistance flows threaten to further erode fiscal space and heighten the risk of debt distress.
Escalating trade frictions are further straining the multilateral trading system, leaving small and vulnerable economies increasingly marginalised in a fragmented global landscape.
Strengthening multilateral cooperation is essential to address these challenges. Revitalising the rules-based trading system and providing targeted support to vulnerable countries will be critical to fostering sustainable and inclusive development.
The Fourth International Conference on Financing for Development, taking place in Sevilla, Spain, from June 30-July 3, will be a crucial platform to address issues such as strengthening multilateral cooperation, debt sustainability and more to drive concrete actions on financing for sustainable development for all, the report added.
