Pakistan is projected to return to a path of moderate economic growth in 2025 following a period of contraction, according to the United Nations’ latest World Economic Situation and Prospects 2025 report. The country’s Gross Domestic Product (GDP) is expected to expand by 2.3% in 2025, buoyed by declining inflation and ongoing reforms under the International Monetary Fund (IMF) programme.
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The report positions Pakistan as part of a broader trend in South Asia, where economic momentum is forecast to remain strong. Growth in the region is expected to hit 5.7% in 2025 and 6.0% in 2026, led by India’s solid performance and economic recoveries in Nepal, Bhutan and Sri Lanka.
Monetary Easing and Fiscal Reform in South Asia
One of the key regional developments highlighted by the report is declining inflation, which has allowed central banks across South Asia to begin or continue monetary easing in 2025. For Pakistan, Bangladesh and Sri Lanka, fiscal consolidation and structural reforms under IMF-supported programmes remain essential components of their economic recovery plans.
These policy adjustments aim to stabilise public finances and support sustainable growth. However, the report cautions that many developing economies, including Pakistan, face limited fiscal space, making it difficult to respond robustly to external shocks or to stimulate domestic demand.
Global Growth Faces Major Headwinds
Globally, the economic landscape has become increasingly fragile. The UN forecasts a slowdown in world GDP growth to 2.4% in 2025, down from 2.9% in 2024, and 0.4 percentage points below previous estimates made in January 2025. The downturn is attributed to several overlapping factors:
- Heightened trade tensions, including a steep rise in US tariffs
- Policy uncertainty, especially in major economies
- High debt levels and weak productivity growth
- Reduced investment by businesses due to a volatile geopolitical environment
These developments are placing downward pressure on both developed and developing economies. For instance, US growth is expected to decelerate to 1.6% in 2025, compared to 2.8% in 2024, while the European Union’s growth is forecast to stagnate at 1.0%.
China and Other Emerging Markets Also Slow
The report also revises downward the growth outlook for several other major emerging economies. China’s growth is expected to ease to 4.6%, hampered by ongoing challenges in the property sector, weak consumer confidence and disruptions to its export-oriented manufacturing base.
Likewise, economies such as Brazil, Mexico, and South Africa face weaker prospects due to falling commodity prices, lower investment, and subdued trade activity. Despite the general slowdown, India remains a bright spot with projected growth of 6.3% in 2025, though this represents a slight downward revision from earlier forecasts.
Trade Shocks Threaten Development
One of the report’s most pressing warnings is the impact of a “tariff shock”, which threatens to particularly harm vulnerable developing countries. The rise in trade barriers, especially those stemming from the US and other advanced economies, risks cutting off export revenues, slowing growth, and worsening existing debt challenges for poorer nations. This is compounded by the sluggish pace of global trade, which is expected to slow from 3.3% in 2024 to 1.6% in 2025 — essentially halving within a year.
Inflation and Food Prices Still Pressuring the Poor
Although global inflation has cooled, falling from 5.7% in 2023 to 4.0% in 2024, many countries are still grappling with persistent price pressures. As of early 2025, inflation remains above pre-pandemic averages in two-thirds of the world’s economies, with over 20 developing countries suffering double-digit inflation.
Food inflation, particularly troubling for low-income households in Africa, South Asia and Western Asia, continues to average above 6%, exacerbated by climate shocks and trade restrictions.
Multilateral Action Needed
The report highlights that rising trade frictions and geopolitical fragmentation are undermining development prospects, especially for least developed countries, where growth is expected to slow from 4.5% in 2024 to 4.1% in 2025.
The UN urges stronger multilateral cooperation to address these challenges, including revitalising the rules-based trading system and providing targeted financial support to struggling economies.
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A key event in this effort will be the Fourth International Conference on Financing for Development, scheduled to be held in Sevilla, Spain, from June 30 to July 3, 2025. The conference aims to develop actionable strategies on debt sustainability, climate finance, and inclusive growth, particularly in the Global South.