Geopolitical competition is fragmenting the global financial system and could reduce global GDP by as much as $6 trillion [2].
This shift threatens to destabilize international trade and investment, creating economic shocks that disproportionately affect emerging economies like India [3].
In a report released Jan. 23, 2024, the World Economic Forum (WEF) detailed how governments are increasingly weaponizing financial and trade systems to pursue geopolitical goals [4]. These tactics include the implementation of tariffs, sanctions, and payment restrictions [3].
Matt Strahan, the lead on financial markets and public policy at the WEF, said the scale of this risk is significant in a recent briefing [1]. Depending on the metric used, the potential loss to global GDP is estimated between $5.7 trillion [3] and $6 trillion [2]. This represents approximately five percent of the world's total economic output [3].
The WEF report noted that the economic costs of this fragmentation could potentially be more than the Covid-19 pandemic, as well as the 2008 global financial crisis [2].
"Countries are increasingly weaponising financial and trade systems to pursue geopolitical goals," the report said [3].
This fragmentation is not merely a shift in policy but a structural break in how capital and goods move across borders. The report suggests that the pursuit of national security interests over economic efficiency is driving a wedge between major trading blocs, a trend that risks isolating smaller nations from essential financial infrastructure.
“Growing geo‑economic fragmentation can decrease global GDP by up to USD 5.7 trillion.”
The shift toward 'geo-economic fragmentation' indicates a move away from the era of hyper-globalization. By using financial systems as tools of statecraft, major powers are creating parallel economic structures. For emerging markets, this means a precarious balancing act where they must navigate competing financial standards and sanctions regimes to maintain growth.
