Global economy losing up to U$307bn a year

The global economy is losing between US$213 billion and US$307 billion a year as trade and financial fragmentation accelerates, according to a new report by the World Economic Forum (WEF).

The report, Deepening Divides: The Cost of a More Fragmented Financial System, found that geopolitical tensions, tariffs, investment restrictions and retaliatory measures are increasingly disrupting global trade and investment flows.

While earlier concerns focused largely on economic rivalry between major powers, the latest findings suggest fragmentation is spreading to traditionally allied economies, including the United States, the European Union, Canada, Japan and South Korea.

The WEF said the growing use of economic measures to advance national interests marked a turning point in 2025 and 2026, increasing uncertainty for businesses and investors.

“The global financial system has faced increasing pressures from geopolitical and economic fragmentation,” said Matthew Blake, managing director and head of the Centre for Financial and Monetary Systems at the WEF.

Despite those pressures, he said financial markets had remained resilient, and policymakers had largely avoided actions that could undermine confidence in the international financial system.

Sharp increases expected

The report warns that the economic costs could rise sharply if current trends continue. Under a severe fragmentation scenario, global losses could reach US$6.9 trillion, equivalent to 6.4% of world GDP.

Current policies are also estimated to add between 0.2 and 0.3 percentage points to global inflation, reducing household purchasing power across many economies.

According to the report, emerging markets and developing economies are likely to bear the greatest burden. Countries outside the main geopolitical blocs could face output losses of up to 10.7%, compared with a global average decline of 6.4%.

The report says these economies are particularly vulnerable because they rely more heavily on international capital flows and often have less developed financial markets.

Africa was highlighted as both vulnerable and resilient. While increased fragmentation could make development financing more expensive and less predictable, regional initiatives such as the African Continental Free Trade Area and the Pan-African Payment and Settlement System could help strengthen economic resilience.

The WEF said fragmentation is unlikely to reverse in the near future but argued that governments can limit the damage through greater policy predictability, stronger international cooperation and deeper regional integration.

The report was produced in collaboration with consulting firm Oliver Wyman and updates the Forum's 2025 analysis using policy and market developments from 2025 and early 2026.