WEF Report on The Cost of a Divided World: Global Economy Could Suffer Losses of up to $5.7 Trillion

A recent report unveiled at the World Economic Forum’s Annual Meeting 2025 has revealed the alarming potential consequences of increasing geo-economic fragmentation. According to the findings, the global economy could suffer losses of up to $5.7 trillion, or 5% of GDP, making the impact even more severe than the 2008 financial crisis or the COVID-19 pandemic.

The report, titled Navigating Global Financial System Fragmentation, highlighted that emerging economies, particularly India, Brazil, Turkiye, and nations in Latin America, Africa, and Southeast Asia, could face the most significant challenges in an extreme fragmentation scenario. These countries could experience GDP drops exceeding 10%, nearly double the global average.

Geo-economic fragmentation, driven by statecraft policies such as sanctions, subsidies, and industrial strategies, has been steadily rising, with sanctions alone increasing by 370% since 2017. These measures, often used to achieve geopolitical goals, are disrupting global trade and financial systems, reducing cross-border capital flows, and undermining economic efficiency.

The report, developed in partnership with Oliver Wyman, estimated that fragmentation could result in a $0.6 trillion to $5.7 trillion economic loss. Additionally, in high-fragmentation scenarios, inflation could climb by over 5%, exacerbating the global cost of living crisis.

World Economic Forum experts cautioned that full economic decoupling between Eastern and Western blocs would likely compel non-aligned nations to rely solely on their largest economic partners, further straining emerging markets. Such fragmentation not only hinders global economic growth but also deepens inflationary pressures, threatening the stability of developing economies that depend on an integrated financial system for progress.

The report urged policymakers to adopt strategies that promote international cooperation, sustainable development, and economic resilience. It emphasized the need for a balanced approach to economic statecraft, one that avoids unintended consequences like higher inflation and GDP losses. Policymakers must navigate this evolving landscape carefully to protect their economies and societies from the adverse effects of fragmentation, the forum recommended.

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