The global economy is on track to expand trade by about 4% this year despite higher oil prices and renewed inflationary pressures, but developing countries are facing growing obstacles to industrialisation as governments increasingly use trade, finance and technology to pursue strategic interests, according to the United Nations Conference on Trade and Development (UNCTAD).
Global growth is expected to slow to 2.6% in 2026, while the conflict in the Middle East has disrupted transit through the Strait of Hormuz, pushing oil prices to around $100 a barrel, Pedro Manuel Moreno, UNCTAD’s acting secretary-general, said in a forward to the agency’s Trade and Development Report 2026: The Geoeconomics of Development.
World trade reached a record $35 trillion last year and remains resilient, Moreno said, but that performance masks an uneven recovery. Outside a handful of fast-growing Asian economies, developing countries as a group are no longer catching up with developed economies, raising concerns about their ability to narrow income gaps through trade and industrial expansion.
The report identifies the growing influence of geoeconomics, in which governments deploy trade policies, financial resources and technological capabilities to achieve strategic objectives, particularly in industries considered essential to national security and technological leadership.
The shift is reshaping the conditions under which developing economies compete for investment, build industries and integrate into global supply chains. Digital technologies and artificial intelligence are increasingly blurring the distinction between economic policy and national security, while geopolitical tensions are redirecting supply chains along more contested lines.
“Globalization continues, but along new contested lines,” Moreno said.
For developing countries, the changes threaten established routes to higher incomes. Industrialisation, merchandise exports and participation in global value chains have historically helped economies build productive capacity and move into higher-value activities. But the report argues that these pathways are becoming less dependable as investment and value creation concentrate in strategic industries requiring substantial capital, technology and specialised skills.
Semiconductors, artificial intelligence and clean technologies are among the sectors at the centre of this competition. Developed economies capture about 70% of greenfield investment in these industries, according to Moreno, with critical minerals the exception. Developing economies lead in attracting investment in critical minerals but often struggle to capture more value through processing and downstream manufacturing.
That imbalance could limit the gains poorer countries derive from their natural resources and participation in global production networks, particularly as governments increasingly support domestic industries through subsidies, state-backed lending and restrictions or conditions on foreign investment.
Developed economies have expanded their use of fiscal instruments to advance industrial policy, giving them financial advantages that many developing countries cannot match, the report says. The resulting competition risks reinforcing existing differences in productive capacity rather than helping lower-income economies move into more sophisticated manufacturing and technology-based activities.
Financing pressures are adding to the challenge. Official development assistance is expected to decline for a third consecutive year, while volatility in portfolio flows to emerging markets has doubled, Moreno said. These trends could leave developing economies with less predictable external financing as they seek to invest in infrastructure, industrial capacity and technological upgrading.
UNCTAD argues that industrial policy needs to be assessed over decades rather than through short-term results, with financial policy treated as a central component. Capital-flow management measures can help contain financial volatility and create greater room for domestic finance to support long-term development priorities, Moreno said.
The report also points to renewable energy as a potential source of economic resilience. Renewables now cost less than the cheapest new fossil-fuel alternative in more than 90% of cases, according to Moreno, strengthening the case for the energy transition on grounds of energy security as well as climate policy.
The economics of renewable power could offer countries a way to reduce exposure to volatile fossil fuel markets, particularly as geopolitical conflicts disrupt energy supplies and raise import costs.
Regional cooperation is another avenue for expanding economic opportunities. Moreno cited India’s agreement to share its digital public infrastructure with 23 countries and Brazil’s efforts to extend its Pix instant-payment system across South America as examples of emerging economies exporting capabilities they have developed domestically.
Such networks can help countries extend the reach of national policies, improve regional economic connections and reduce some barriers to participation in digital markets. Their effectiveness, the report argues, is strengthened by a multilateral trading system that preserves non-discrimination and special and differential treatment for developing countries.
The findings highlight a tension facing policymakers. Global trade continues to expand, but the benefits of that expansion increasingly depend on access to capital, technology and government support in sectors that major economies consider strategically important.
For developing countries, the challenge is to sustain integration into the world economy while building domestic productive capacity and retaining the policy space needed to pursue long-term development.
UNCTAD, established to help developing countries turn global economic integration into development, says that mission has become more important as governments redraw the rules and routes of international commerce.
“Their measure will be the room they leave every country to build, trade and grow,” Moreno said.
