Geo-economic Fragmentation May Trim Global GDP By $5.7 Trn: WEF

Davos: Growing geo-economic fragmentation can decrease global GDP by up to $5.7 trillion, giving it a bigger blow than the financial crisis of 2008 or the Covid-19 pandemic, a new study showed on Thursday.

India and some other emerging economies can bear the biggest burden in the most extreme fragmentation scenario, it cautioned. Countries are increasingly using the global financial and trading systems to advance geopolitical objectives through sanctions, industrial policies, and other economic measures, the World Economic Forum (WEF) said, while releasing the report here during its Annual Meeting 2025.

The Navigating Global Financial System Fragmentation report estimated that fragmentation resulting from statecraft policies could cost the global economy $0.6 trillion to $5.7 trillion – up to 5 per cent of global GDP – due to reduced trade and cross-border capital flows as well as lost economic efficiencies. It could also increase global inflation by more than 5 per cent in a very high fragmentation scenario, it added.

The report, developed in collaboration with Oliver Wyman, showed that the economic impact of rising geo-economic fragmentation could surpass the disruptions caused by the 2008 financial crisis or the Covid-19 pandemic. Countries have been increasingly using the financial system to advance their geopolitical objectives – evidenced by a 370 per cent rise in sanctions since 2017, along with subsidies, industrial policies and discussions about the creation of parallel financial architectures.