MMerchandise trade entered the year on an unexpectedly strong footing, driven by high-tech manufacturing and trans-Pacific container shipping. However, beneath the surface of these strong early performance indicators lies a more fragile reality, according to the United Nations Conference on Trade and Development (UNCTAD).
In its latest Trade and Development Outlook 2026 report, UNCTAD found that the initial momentum that has defined global trade over the past few quarters is already facing headwinds. Trade analysts and policymakers warn that a combination of cold technology sectors, structural weaknesses, and a sudden military escalation in the Middle East will severely restrict international trade for the rest of the year.
“Fragile aggregate demand, combined with persistent uncertainties and new geopolitical risks, suggest that the momentum observed in 2025 and early 2026 will fade as the year progresses,” the report said.
Trade metrics from January and February presented a picture of solid health, indicating resilient trade volumes, driven primarily by flows of containerized goods originating from major Asian industrial centers and crossing trans-Pacific shipping lanes. China, in particular, recorded strong performance indicators at the beginning of the year, with its total exports expanding by more than 20% in dollar terms during the first two months compared to the same period twelve months ago.
The United Nations Conference on Trade and Development (UNCTAD) said global shipping expanded by 5.3% during January and February, supported by double-digit growth rates in commodity sectors including automobiles, grains and liquefied natural gas. This data was supported by the PMI in the global manufacturing sector reaching heights not observed since 2021.
Balancing act
However, UNCTAD notes that at the beginning of the year this power was structurally unbalanced. The majority of the trade expansion has been largely concentrated within a narrow and very specific range of high-tech goods, rather than representing a broad recovery in global consumer demand. Specifically, the market was disproportionately driven by AI-enabled devices and technology-intensive electronics, according to UNCTAD. The report notes that “AI-linked devices contributed significantly to merchandise trade in 2025” and early 2026, artificially inflating overall trade figures.
This contrasts with lower gains in trade in basic consumer goods and textiles and clothing, with standard intermediate industrial inputs recording only modest nominal gains over the same period. Moreover, commodity-related trade remained weak, and capital goods outside the immediate digital sphere showed uneven momentum, suggesting soft and stagnant investment cycles across a wide range of developing countries.
This fundamental vulnerability has been tested by the sudden shift in global risk factors resulting from the war in Iran. Military escalation in the Middle East has disrupted major global shipping routes, exacerbating existing macroeconomic fragility. In particular, vital sea lanes across the region are facing unprecedented pressure, leading to severe bottlenecks in energy and shipping logistics. UNCTAD said: “The disturbances in the Strait of Hormuz have caused a significant negative shock to trade and maritime transport in particular.”
High energy costs due to the war were a direct tax on global production and transportation, creating macroeconomic pressures that directly affected the ability to import goods.
Although net energy exporters may see a near-term windfall from higher oil revenues, domestic consumers around the world remain highly sensitive to rising fuel and utility prices. Even minor inflationary pressures on consumer goods threaten to undermine broader public consumption, thereby leading to a significant slowdown in general goods imports and harming global trading partners, according to UNCTAD.
Policy fluctuations
Amid these tensions, the institutional background for international trade is rapidly transforming. Due to the volatile political landscape, many economies are going beyond traditional channels and becoming more proactive in launching local, regional or sectoral business initiatives. Trade policy cooperation is expanding beyond simple tariff reductions to focus on supply chain resilience, securing critical minerals, digital trade frameworks, and environmental standards. For example, the United States has signed 21 bilateral frameworks and memorandums of understanding devoted exclusively to critical minerals over the past six months, covering 28 separate economies, UNCTAD noted. Meanwhile, China introduced its own international economic and trade cooperation initiative in mining and green minerals, while the EU-Singapore digital trade agreement entered into force at the beginning of February.
This rapid proliferation of independent regional and multilateral arrangements is a test of the resilience of the traditional multilateral trading system.
Historically, RTAs have been viewed as complementary building blocks designed to strengthen the central structure of the WTO. Now, companies and governments face an increasingly fragmented and unpredictable business landscape.
The ripple effect of these dynamics is conservative forecasts of future trade. UNCTAD expects a sharp decline in trade growth during the remainder of the year. In real terms, the growth rate of global merchandise trade is expected to slow sharply from the strong 4.7% expansion recorded in 2025 to a modest range of just 1.5 to 2.5% in 2026.
The surge early in the year proved to be a temporary high-tech anomaly rather than a sustainable economic recovery, leaving global supply chains and trade-dependent economies facing a volatile and challenging year.
Source: Baltic Stock Exchange, UNCTAD
