Providing Updated Analysis for Report on the Evolution of Global Financial System Fragmentation

In 2026, the World Economic Forum (WEF) published Deepening Divides: The Cost of a More Fragmented Financial System, a flagship report on the economic risks of rising geopolitical and financial segmentation. NERA contributed the quantitative analysis measuring the potential macroeconomic impacts of increased geoeconomic fragmentation.

The analysis employs the multi-country, multi-sector model from the January 2025 Navigating Global Financial System Fragmentation report. It measures fragmentation’s economic impact using direct shocks such as tariffs and indirect shocks such as negative productivity effects that may arise from investment restrictions or exclusion from payment systems.

The updated analysis shows that fragmentation is already reducing global gross domestic product (GDP) growth by between $213 billion and $307 billion and raising inflation by 0.2–0.3 percentage points (pp). The impact of existing policy varies by bloc: Costs are more substantial in the West, where growth is set to be reduced by 0.3–0.4 pp, than in the East or Neutrals, each of which faces a more modest reduction of approximately 0.1 pp. The likelihood of further escalation has also increased. In a hypothetical worst-case scenario of full economic decoupling between East and West, the negative impact on GDP could reach $6.9 trillion. If escalation occurs, Neutral countries would experience larger output declines than either the West or the East because trade represents a larger share of their outputs, making them more exposed even though import declines are similar across blocs.