Tag Archives: developing economies

Finance

Trade and Financial Fragmentation Spreads Beyond Rivals as Costs Mount

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  • Fragmentation is already costing the global economy $213–$307 billion annually, while adding 0.2–0.3 percentage points to global inflation.
  • Fragmentation is spreading beyond geopolitical rivals to traditionally allied economies, including the EU, Canada, Japan and South Korea.
  • Emerging markets are likely to be hit the hardest by these shocks as countries outside the major geopolitical blocs face an estimated 10.7% hit to GDP growth versus 6.4% globally, even as regional initiatives offer new solutions.
  • Read the full report and learn about the initiative. Learn more about the Annual Meeting of the New Champions 2026 here. Follow on social media using #amnc26, #2026夏季达沃斯#.

New York, USA, June 2026 – Geoeconomic fragmentation imposing an annual cost of $213–$307 billion usd/ $296- $426 billion cad on the global economy, according to a new World Economic Forum report release today. Driven by geopolitical tensions, economic security concerns and shifting trade relationships across major economies, fragmentation accelerated through 2025 and 2026 and is increasingly affecting trade, finance and investment systems.

Deepening Divides: The Cost of a More Fragmented Financial System — published in collaboration with Oliver Wyman, a Marsh business, and the second in the Forum’s fragmentation series — finds that these pressures are playing out through escalating tariffs, investment restrictions and retaliatory measures.


The report finds  that the growing use of economic statecraft in 2025 and 2026  marked a turning point for global trade and finance. While the first report focused primarily on fragmentation risks between geopolitical rivals, the latest findings suggest a broader structural shift is underway. Tariffs and investment restrictions are increasingly affecting traditionally aligned economies, including the US, the EU, Canada, Japan and South Korea, raising costs for businesses and increasing uncertainty for cross-border trade and investment.

“The global financial system has faced increasing pressures from geopolitical and economic fragmentation,” says Matthew Blake, Managing Director and Head of the Centre for Financial and Monetary Systems World Economic Forum. “Despite these pressures, the financial system has remained resilient. Markets have continued to provide real-time feedback on evolving policies while policy-makers have generally avoided actions that could erode confidence in the international financial system. As fragmentation persists, preserving the trust and stability that underpin global finance will be critical to supporting long-term growth and prosperity.” 

The economic costs are rising
As fragmentation becomes more embedded across markets and financial systems and barriers rise even among allies, the risks of escalation and long-term economic disruption increase. If current trends accelerate into more severe fragmentation scenarios, global losses could reach as much as $6.9 trillion usd, or 6.4% of global GDP, according to the report’s modelling, an economic impact larger than every economy in the world except the US and China.

Ultimately, fragmentation impacts both businesses and households. Current fragmentation policies are estimated to add 0.2–0.3 percentage points to global inflation, eroding purchasing power across most economies. The sharpest real wage impacts are seen in the United States, where real wages are estimated to be 0.33% lower for low-skilled workers, 0.49% lower for medium-skilled workers and 0.66% lower for high-skilled workers, with similar purchasing-power pressures visible in other major economies.

“In conversations with business leaders around the world, the message is remarkably consistent: What businesses need most right now is predictability, and they are not getting it,” says Daniel Tannebaum, Partner and Global Leader, Anti-Financial Crime Practice, Oliver Wyman, a Marsh business. “Without clearer guardrails around tariffs, sanctions and other economic measures, the risks to investment, growth and financial stability will continue to mount.”

Emerging markets face the sharpest exposure
Emerging markets and developing economies (EMDEs) are likely to be the hardest hit by the impacts of growing financial fragmentation. In the most extreme fragmentation scenario, countries outside the major geopolitical blocs, most of which are EMDEs, could face output losses of 10.7%, compared to a global decline of 6.4%.

Structural factors like shallower capital markets make EMDEs more dependent on international capital flows and more vulnerable to the negative impacts of a less integrated financial system.

Africa exemplifies both the risks and potential resilience pathways. The continent’s exposure to external capital flows means a more fragmented system would make development financing more expensive and less predictable. At the same time, regional integration – through initiatives like the African Continental Free Trade Area (AfCFTA) and payment systems such as Pan-African Payment and Settlement System (PAPSS) – offers pathways to build resilience in Africa, which also stands to benefit from such secular trends as population growth and an abundance of critical raw materials.

While fragmentation is unlikely to reverse in the near term, it can be managed. The report identifies five actions policy-makers can take to mitigate fragmentation:

Policymakers can limit the damage

  • Establish shared guardrails to protect the financial system from fragmentation, emphasizing principles like safeguarding the rule of law and independent monetary policy, limiting the seizure of sovereign assets, and protecting the integrity of government data.
  • Align on rules to guide the use of economic statecraft policies that advance national security and resilience objectives without undermining global growth.
  • Ensure policy predictability to sustain investment flows and allow for the continued functioning of cross-border capital and financial markets.
  • Maintain interoperability across payment and digital currency systems and prepare businesses for a more fragmented geoeconomic operating environment.
  • Advance regional integration initiatives such as the AfCFTA and PAPSSP, as well as support the development of domestic and regional capital markets, including the European Savings and Investments Union. 

Together, these measures can help preserve financial stability and resilience even as the global economy becomes more fragmented.

Report methodology


The report updates the Forum’s 2025 fragmentation analysis to reflect policy and market developments across 2025 and early 2026. Its quantitative modelling estimates the economic impact of current trade and financial policies and examines multiple escalation scenarios across output, inflation, trade flows and wages.

The analysis also incorporates updated assumptions on tariffs, countermeasures, pass-through rates and restrictions on services trade, alongside qualitative insights from business leaders, policy-makers and financial-sector experts, including regional perspectives from Africa.

About the Annual Meeting of the New Champions 2026


The 17th Annual Meeting of the New Champions will take place from 23 to 25 June 2026 in Dalian, People’s Republic of China, under the theme “Innovating at Scale”. The meeting will bring together 1,500 cross-sector leaders to explore how innovation and emerging technologies can unlock new growth models and drive positive economic momentum in a fast-shifting global landscape.

For the Silo, Jarrod Barker.

Politics

World Economic Forum- Global Cooperation At Crossroads

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The Global Cooperation Barometer indicates that international cooperation has “flatlined”, driven by heightened geopolitical tensions and instability, but positive momentum in climate finance, health and innovation offers hope.
In an era of heightened volatility, leaders will need to embrace “disordered” cooperation and dynamic, solutions-driven decision-making to deliver tangible results and build trust. AI and other emerging technologies are reshaping the global landscape and driving upheaval. Concerted cooperation will be critical to harness benefits and minimize risks.

Geneva, Switzerland, January 2025 – The World Economic Forum’s Global Cooperation Barometer offers a critical assessment of the state of global cooperation, showing a world grappling with heightened competition and conflict, while also identifying various areas where leaders can drive progress through innovative collaboration. Released amid geopolitical, technological and sociopolitical upheaval, the Forum’s flagship annual report underscores the urgency of addressing shared challenges and offers leaders guidance on what cooperation can look like in a shifting world.
 
The Global Cooperation Barometer 2025, developed in collaboration with McKinsey & Company, uses 41 indicators to measure the current state of global cooperation. The aim is to offer leaders a tool to better understand the contours of cooperation broadly and along five pillars: trade and capital flows, innovation and technology, climate and natural capital, health and wellness, and peace and security. Now in its second edition, the Barometer draws on new data to provide an updated picture of the global cooperation landscape, with a particular focus on the impact of the new technological age.
 
“The Barometer is being released at a moment of great global instability and at a time when many new governments are developing agendas for the year, and their terms, ahead,” said Børge Brende, President and CEO of the World Economic Forum. “What the Barometer shows is that cooperation is not only essential to address crucial economic, environmental and technological challenges, it is possible within today’s more turbulent context.”
 
“This second edition of the Global Cooperation Barometer focuses on where cooperation stands today and what it can look like in the new technological age,” said Bob Sternfels, Global Managing Partner, McKinsey & Company. “Advancing global innovation, health, prosperity and resilience cannot be done alone. Leaders will need new mechanisms for working together on key priorities, even as they disagree on others, and the past several years have shown this balance is possible.”

The latest edition of the Barometer highlights that global cooperation is at a critical juncture. The report’s analysis reveals that after trending positively for a decade and surpassing pre-pandemic levels, overall cooperation has stagnated.

This has been driven by a sharp decline of the peace and security pillar of the Barometer over the past seven years, caused by mounting geopolitical tensions and competition which have significantly eroded global collective security. Levels of conflict and attendant humanitarian crises have increased in the past year to record levels, driven by crises including, but not limited to, the Middle East, Ukraine and Sudan.

As the largely stable cooperative order that defined the post-Cold War period is giving way to a more fragmented landscape, solutions to pressing challenges – from climate action to technological governance – require collaboration. And despite the global security crises, the new findings indicate that collaboration has continued in various areas including vaccine distribution, scientific research, renewable energy development, and more – offering models for future cooperation.
Notably, peace and security have declined sharply in recent years, but other pillars of the Barometer have remained resilient and reveal emerging opportunities for international cooperation,

Innovation and technology. While geopolitical competition is rising in regard to certain frontier technologies such as semiconductors, overall global cooperation on technology and innovation advanced in 2023, in part due to digitization of the global economy. This helped drive the adoption of new technologies, a strong ramp-up in the supply of critical minerals – and a related drop in price of lithium batteries – and a rebound in student mobility. However, rapid disruption from emerging technologies such as AI is reshaping the global landscape, raising the possibility of a new frontline of geostrategic competition or even an “AI arms race”. Cooperative leadership and inclusive strategies will be key to harness its vast potential while tackling risks.

Climate and natural capital: Cooperation on climate goals improved over the past year, with increased finance flows and higher trade in low-carbon technologies such as solar, wind and electric vehicles. Yet, urgent action is required to meet net-zero targets as global emissions continue to rise. Greater global cooperation will be essential to scale up technologies and secure the financing needed to meet climate goals by 2030.

Health and wellness: Some health outcomes, including life expectancy, continued to improve post-pandemic, but overall progress is slowing compared to pre-2020. While cross-border assistance and pharmaceutical R&D have declined, and cooperation on trade in health goods and international regulations stalled, various health metrics including child and maternal mortality remain strong. Given rising health risks and ageing populations, leaders should invest in global cooperation to bolster public health and sustainable health systems.

Trade and capital flows: Metrics related to the flow of goods and services, trade, capital and people had mixed outcomes in 2023. Goods trade declined by 5%, driven largely by slower growth in China and other developing economies, while global fragmentation continued to reduce trade between Western and Eastern-aligned blocs. Despite this, global flows of services, capital and people showed resilience. Foreign direct investment surged, particularly in strategic sectors like semiconductors and green energy, while labour migration and remittances rebounded strongly, surpassing pre-pandemic levels.Looking ahead, leaders will need to find ways to work together, even as competition increases, as tangible results will be crucial to maintain public trust and support. The report concludes by underscoring the urgent need for adaptive, solutions-driven leadership to navigate a turbulent global landscape. By pivoting towards cooperative solutions, leaders can rebuild trust, drive meaningful change and unlock new opportunities for shared progress and resilience in the complex years ahead.
 
About the Global Cooperation Barometer Methodology
 
The Global Cooperation Barometer – first launched in 2024 – evaluates global collaboration across five interconnected dimensions: trade and capital, innovation and technology, climate and natural capital, health and wellness, and peace and security. The Barometer is built on 41 indicators, categorized as cooperative action metrics (evidence of tangible cooperation, such as trade volumes, capital flows, or intellectual property exchanges) and outcome metrics (broader measures of progress like reductions in greenhouse gas emissions or improvements in life expectancy). Spanning 2012–2023 and indexed to 2020 to reflect pandemic-era shifts, the Barometer normalizes data for comparability (e.g., financial metrics relative to global GDP and migration metrics to population levels) and weights it equally within and across pillars.
 
About the Annual Meeting 2025
 
The World Economic Forum Annual Meeting 2025, taking place in Davos-Klosters from 20 to 24 January, convenes global leaders under the theme, Collaboration for the Intelligent Age. The meeting will foster new partnerships and insights to shape a more sustainable, inclusive future in an era of rapidly advancing technology, focusing on five key areas: Reimagining Growth, Industries in the Intelligent Age, Investing in People, Safeguarding the Planet, and Rebuilding Trust. Click here to learn more.