The growth of global merchandise trade is expected to ease to as low as 1.5 percent this year as geopolitical tensions cast doubt on supply chains and threaten demand for critical inputs such as semiconductors, according to the United Nations Conference on Trade and Development (UNCTAD).

In its report on trade development and foresight, UNCTAD projected that global trade growth would slow to between 1.5 and 2.5 percent from an estimated 4.7 percent growth in 2025—a year marked by uncertainties in trade policies such as tariffs.

UNCTAD said geopolitical tensions had surpassed trade policy uncertainty as the primary concern for global trade in late February, or at the start of the war in the Middle East involving Iran, Israel, and the United States.

Earlier, UNCTAD said global trade growth would settle between 2.5 and 3 percent this year amid the lack of frontloading and supported by strong demand for products related to artificial intelligence (AI).

AI-related goods such as semiconductors, servers, high-performance computing equipment, and components associated with service automation and data centers helped global trade start on a strong footing this year, the report said.

“Yet fragile aggregate demand, compounded by persistent uncertainties and new geopolitical risks, suggests that the momentum observed in 2025 and early 2026 will fade as the year progresses,” it said.

UNCTAD said tensions in the Strait of Hormuz, a critical maritime route through which around 20 percent of the global oil supply passes, have not only pushed energy prices higher but also increased maritime freight rates, making shipments of goods more expensive.

With a higher focus on AI-related products, UNCTAD said this makes global trade “more vulnerable to external shocks in a global economy rattled by military escalation in the Middle East.”

“Beyond 2026, rising geopolitical tensions are likely to accelerate the reconfiguration of global merchandise trade, the contours of which are starting to emerge. But for now, firms and governments will need to accommodate a more volatile landscape,” the report read.

Similar to the global trend, the Philippines has largely anchored the growth of its merchandise exports on AI-related products, particularly semiconductors.

Electronic products remain the country’s top export commodity, with sales expanding by 24.5 percent to $13.06 billion in the first quarter from $10.49 billion in the same period last year. Semiconductors accounted for $9.97 billion, or 76 percent of the total, in the first three months.

The Department of Trade and Industry (DTI) attributed the growth to stronger overseas demand for emerging technologies such as AI.

For the year, the Semiconductor and Electronics Industries in the Philippines Foundation Inc. (SEIPI) is projecting that electronic exports would grow by five percent to hit an all-time high of over $50 billion in sales.

SEIPI President Danilo Lachica earlier said that shortages in jet fuel and the potential grounding of planes would pose a major hurdle to this outlook, as semiconductor products are primarily transported by air to foreign markets.

The country’s merchandise exports rose to a record $22.70 billion in the first quarter, up 12.7 percent from $20.14 billion in the same period last year, according to the Philippine Statistics Authority (PSA).