A full-scale economic decoupling between the East and the West could erase $6.9 trillion from global GDP in 2025–26, the World Economic Forum (WEF) warned in a new report, underscoring the mounting risks for multinational corporations, investors, and governments navigating geo-economic fragmentation. Even under current policies, fragmentation is already exacting a measurable toll: existing trade and financial measures are cutting global GDP growth by between $213 billion and $307 billion and adding 0.2–0.3 percentage points to inflation, according to the WEF report.
The cost of fragmentation
| Scenario | GDP impact | Inflation impact |
|---|---|---|
| Current trade & financial policies | −$213 bn to −$307 bn | +0.2–0.3 pp |
| Full East‑West decoupling | −$6.9 trillion | Not specified |
| Worst‑case escalation | −6.4 pp growth | +6.1 pp |
The WEF report highlights that emerging markets and developing economies (EMDEs) will be hit hardest due to reduced access to capital. For the United States, output growth is expected to be 0.4–0.6 percentage points lower than previously projected. In contrast, some neutral countries are less affected; Indonesia, for example, faces only a 0.1 percentage point hit to output growth, the report noted.
Policy uncertainty and geopolitical tensions
According to WEF, governments are increasingly introducing unexpected trade and financial barriers, creating fresh risks for businesses. The United States has attempted to reshape global trade and finance through tariffs and other restrictions, particularly against China. Beijing responded by leveraging its dominance in critical minerals supply chains and redirecting exports, a move that helped China record its highest trade surplus in 2025, the report stated. The US also expanded the tariff war to allied countries, prompting retaliatory measures and encouraging nations to diversify their geo-economic partnerships.
The report noted that rising nationalism, geopolitical tensions, and declining institutional legitimacy have weakened the role 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 increase risks to financial stability.
WEF also warned that governments are placing growing pressure on central bank independence, attempting to influence monetary policy through rhetoric and policy actions.
Implications for corporate strategy
For C‑suite executives and investors, the report signals that policy volatility—especially in tariffs and financial restrictions—will remain a critical factor in investment and hiring decisions. “In 2025 and 2026, severe swings in policy and enforcement by countries reduced certainty and affected decisions on investing and hiring,” the WEF report noted. Companies with cross‑border supply chains or exposure to emerging markets should prepare for further fragmentation, including tighter controls on capital flows and critical minerals access.
The 2025 US‑China trade conflict saw tariffs briefly exceed 100%, and the global economy must now prepare for more extreme scenarios, the report cautioned.
Looking ahead: preparation for extreme scenarios
WEF cautioned that governments could increasingly use control over key economic chokepoints as a strategic tool, deepening global fragmentation. 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. The report's blunt conclusion: “An increasingly likely escalation could raise the economic cost to $6.9 trillion.”
