Global economic fragmentation could slash USD 6.9 trillion from world GDP: WEF
New Delhi, June 29
As 2025-26 marks a turning point from globalization to geo-economic fragmentation, a full East-West economic decoupling could cost the global economy up to USD 6.9 trillion in GDP, according to a report by the World Economic Forum.
As per WEF, "an increasingly likely escalation could raise the economic cost to USD 6.9 trillion," which could severely impact emerging markets and developing economies (EMDEs) due to reduced access to capital.
The report notes that fragmentation is already reducing gross domestic product (GDP) growth by between USD 213 billion and USD 307 billion while pushing inflation by 0.2-0.3 percentage points (pp). At the same time, countries are increasingly adopting unexpected trade and financial barriers, amplifying risks for businesses and economies worldwide.
It further noted that the US has sought to reshape the global trade and financial system through tariffs and other restrictions, particularly targeting China. Beijing retaliated by leveraging its dominance in critical minerals supply chains and redirecting exports, helping it post a record trade surplus in 2025. Washington also extended tariffs and restrictions to allied countries, prompting retaliation and efforts to diversify geo-economic partnerships.
"In 2025 and 2026, severe swings in policy and enforcement by countries reduced certainty and affected decisions on investing and hiring," the report noted.
According to WEF, rising nationalism, geopolitical tensions and declining institutional legitimacy have weakened the effectiveness of multilateral institutions such as the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO). With the WTO's dispute-settlement role diminished, countries are increasingly relying on bilateral agreements and local currency settlements, a shift that could reduce economic efficiency and heighten financial stability risks.
The report also warns that pressure on central bank independence is increasing as governments attempt to influence monetary policy through rhetoric and policy actions.
The WEF estimates that existing trade and financial policies are already slowing growth and raising inflation, although the impact differs across economies. For example, "US output growth is expected to be 0.4-0.6 pp lower than projected, whereas some Neutral countries are less affected, including Indonesia, with a projected 0.1 pp hit to output growth," it said.
The report further cautions that governments may increasingly weaponize control over key economic chokepoints. It warns that further economic fragmentation would weaken growth and fuel inflation across all regions. "In the worst-case scenario, economic growth could fall by up to 6.4 percentage points, while inflation could rise by as much as 6.1 percentage points," it said.
Furthermore, highlighting the sharp escalation of the 2025 US-China trade conflict, which briefly saw tariffs exceed 100 per cent, WEF stressed the world economy needs to prepare for extreme scenarios.
— ANI
Reader Comments
The 6.9 trillion figure is staggering, but what worries me more is the inflation impact—0.2-0.3% might sound small, but for a country like India where millions live on tight budgets, that's another burden on household finances. 😟 The government needs to shield the poor and middle class from these global shocks. Maybe focus more on domestic production and less on export-driven growth?
All this fragmentation is making the world poorer, but the real question is—what's India's strategy? While the US and China fight, we should be positioning ourselves as a neutral manufacturing hub. Vietnam and Mexico are eating our lunch in electronics and auto parts. Our policies need to be more business-friendly, not more protectionist. The WTO is dying, so we need bilateral deals that actually work.
As someone who works in trade finance, this is exactly what we're seeing on the ground. Banks are pulling back from cross-border lending, and companies are hoarding cash instead of investing. The US-China tariff war is real and it's hitting supply chains everywhere. India needs to push for more local currency settlement deals—rupee trade with Russia, UAE, ASEAN is a good start but we need scale.
The report says pressure on central bank independence is increasing—this is a dangerous trend. Inflation control relies on credible monetary policy. If RBI starts bowing to political pressure, we'll see higher inflation and a weaker rupee. The WEF is right to flag this. India must protect institutional autonomy. Democracy isn't just about elections, it's about institutions that work for the common man. 🏛️
J James A