AI boom masks global trade slowdown as UNCTAD cuts growth forecast to 1.5%

AI trade slowdown: UNCTAD slashes global growth forecast to 1.5% as tech surge hides weakness

James Okafor | GlobalBeat

The United Nations Conference on Trade and Development slashed its global trade growth forecast to 1.5% for 2025, warning that booming AI-related shipments are masking a broader slowdown in international commerce.

The Geneva-based agency revealed that headline trade figures appear healthy only because semiconductor exports to data centers have surged 32% since January, while traditional manufacturing trade contracts across most regions.

The slowdown marks the weakest year for global merchandise trade since 2019, excluding the pandemic crash of 2020. UNCTAD’s report, released Wednesday, shows volumes falling in autos, textiles, and basic electronics as consumer demand weakens in Europe and North America. The artificial intelligence boom has created what economists call a “two-speed trade system” where chips and servers race ahead while everything else stalls.

UNCTAD Secretary-General Rebeca Grynspan told reporters the data reveals “a troubling concentration of growth in just five tech categories” that represent 8% of world trade but account for nearly half of this year’s expansion. She warned the narrow base leaves global commerce vulnerable to sudden reversals if AI investment cools. The report calculates that without AI-related shipments, global trade would be shrinking 0.3% year-over-year.

Regional breakdowns expose the widening gaps. Asia’s export growth has slowed to 2.1%, pulled down by China’s 1.2% contraction in consumer goods shipments. Europe fares worse with a 0.8% decline in intra-regional trade as German industrial orders fell 11% from last year. Latin America shows the sharpest deterioration, with Brazilian exports down 7% and Mexican manufacturing shipments to the United States dropping 4% despite nearshoring hype.

Shipping industry data confirms the slump. The Shanghai Containerized Freight Index has fallen 18% since March as carriers cancel sailings. Maersk announced 10 blank sailings on Asia-Europe routes this month, citing “demand destruction” in European retail. Port throughput at Los Angeles and Long Beach dropped 6% in April, the fifth consecutive monthly decline, as inventory gluts at American retailers persist.

Financial markets barely reacted to UNCTAD’s warning. The MSCI World Index edged up 0.2% as investors focused on Nvidia’s latest earnings beat. “Markets are myopic about AI anything,” said Joanna Tan, senior economist at Singapore’s DBS Bank. “They see semiconductor exports and think trade is booming. They miss that one sector is carrying the whole load.”

Developing nations face particular strain. African exports have stalled at $480 billion annually since 2022 as commodity prices plateau. UNCTAD estimates 44 least-developed countries will see their collective trade surplus shrink $12 billion this year as demand softens for cotton, copper, and coffee. Bangladesh’s garment exports, which employ 4 million workers, fell 14% in the first quarter as European retailers cut orders.

The automotive sector exemplifies the broader malaise. Global car shipments dropped 9% in the first four months of 2025, according to data from 23 major exporters. Germany’s premium manufacturers shipped 15% fewer vehicles as Chinese consumers shift to domestic brands. American auto exports declined 11% despite a weaker dollar making them cheaper abroad. Stellantis idled its Turin factory for three weeks in May, citing “order book weakness across all European markets.”

Energy trade offers little relief. Oil shipments grew just 1% despite Middle East tensions keeping prices above $80 per barrel. Europe’s natural gas imports fell 8% as storage levels hit 68% capacity, reducing spot buying. Coal trade dropped 12% as renewable capacity additions in India and China reduce fossil fuel needs. “Even energy can’t prop up trade anymore,” said Saul Kavonic, energy analyst at FTI Consulting. “Demand destruction finally caught up.”

Background

Global trade volume growth averaged 4.7% annually between 1990 and 2019, making it the primary driver of economic convergence between rich and poor nations. The World Trade Organization’s last major trade round concluded in 2013, and subsequent protectionist measures have chipped away at the post-war liberalization architecture. The Trump administration’s tariffs beginning in 2018 marked the inflection point, with average global tariffs rising from 2.8% to 3.7% by 2024.

COVID-19 exposed the fragility of just-in-time supply chains, prompting companies and governments to prioritize resilience over efficiency. Japan allocated $2.2 billion in 2020 specifically to help manufacturers shift production out of China. The European Union’s Critical Raw Materials Act, enacted in 2024, requires that no more than 65% of any strategic mineral come from a single country. These reshoring efforts initially supported trade through construction equipment and machinery exports but that momentum has faded.

What’s Next

UNCTAD will release updated regional trade figures in September, with preliminary data suggesting the third quarter could show outright contraction if semiconductor demand eases. The WTO’s ministerial conference in Cape Town next March looms as a crucial test of whether major economies can arrest the slide toward protectionism.

The AI investment cycle that has sustained chip demand faces its own reckoning as hyperscale data center construction starts to outpace actual AI revenue generation. Cloud providers spent $120 billion on infrastructure last quarter while generating just $85 billion in AI-related revenue, according to Synergy Research. When that gap narrows, the last engine keeping global trade positive could sputter, exposing the full depth of the broader manufacturing slump.