Media365
A deepening split in the global economy could erase as much as USD 6.9 trillion from global GDP if economic fragmentation between the East and the West intensifies, the World Economic Forum (WEF) has warned in its latest assessment.
According to the report, the global economy is entering a decisive phase in 2025-26, marked by a shift away from decades of globalization toward growing geo-economic fragmentation driven by trade disputes, investment restrictions and geopolitical rivalries.
The WEF estimates that existing trade and financial barriers are already reducing global GDP growth by USD 213 billion to USD 307 billion while pushing inflation higher by 0.2-0.3 percentage points. However, the economic damage could escalate significantly if geopolitical tensions lead to a complete economic decoupling between major global blocs.
In its worst-case scenario, the report projects a USD 6.9 trillion hit to global output, with emerging markets and developing economies (EMDEs) expected to bear the brunt due to reduced access to international capital and weaker investment flows.
The report notes that countries are increasingly adopting trade restrictions, financial barriers and industrial policies that are reshaping global supply chains. It points to the United States’ efforts to redesign the global trade and financial architecture through tariffs and restrictions, particularly targeting China, and Beijing’s retaliatory measures.
Such developments, the WEF said, are accelerating the fragmentation of global trade and investment, reducing economic efficiency and increasing financial stability risks.
The report also flagged growing concerns over the independence of central banks, warning that governments are increasingly attempting to influence monetary policy through political pressure and policy interventions.
The impact of fragmentation is expected to vary across economies. The WEF estimates that US economic growth could be 0.4-0.6 percentage points lower than earlier projections, while some neutral economies, including Indonesia, may witness a relatively modest hit of around 0.1 percentage point.
Beyond trade, the report cautioned that governments could increasingly weaponize control over critical economic chokepoints, adding another layer of risk to global commerce and financial markets.
In an extreme scenario, the WEF warned that global economic growth could decline by as much as 6.4 percentage points, while inflation could rise by up to 6.1 percentage points, significantly weakening the global economic outlook.
Highlighting the sharp escalation in the 2025 US-China trade conflict, during which tariffs briefly crossed 100 per cent, the report stressed that policymakers and businesses must prepare for increasingly disruptive geopolitical and economic shocks.
