Fragmented Future: Global Economy Faces USD 6.9 Trillion Risk Amid East-West Decoupling

A World Economic Forum report warns that geo-economic fragmentation, marked by East-West decoupling, could cost the global economy up to USD 6.9 trillion in GDP, affecting emerging markets significantly. Rising trade barriers and geopolitical tensions threaten global economic growth and inflation, heightening financial stability risks worldwide.

The World Economic Forum (WEF) has issued a dire prediction, warning that geo-economic fragmentation could cost the global economy up to USD 6.9 trillion in GDP. The potential decoupling between East and West is a major concern, particularly for emerging markets and developing economies (EMDEs), which may face reduced access to capital.

The report highlights the economic toll of fragmentation, noting a reduction in global GDP growth by USD 213 billion to USD 307 billion, along with an inflation increase of 0.2-0.3 percentage points. Countries are intensifying trade and financial barriers, posing heightened risks. Notably, the US has pursued tariffs targeting China, prompting retaliatory moves by Beijing in critical mineral supply chains.

According to the WEF, geopolitical tensions, rising nationalism, and weakened multilateral institutions are exacerbating the situation. With diminished roles for organizations like IMF and WTO, nations are leaning towards bilateral agreements. This shift poses threats to economic efficiency and financial stability, with central banks potentially facing increased government pressure in policy making.