Deepening Divides: The Cost of a More Fragmented Financial System

The report argues that the global financial system has reached a turning point in 2025-2026, as the US and China employ tariffs and economic statecraft to rewire trade and finance. Quantitative analysis suggests current policies are already reducing global GDP by $213 billion to $307 billion, with a worst-case decoupling scenario potentially costing $6.9 trillion. The document highlights that emerging markets and developing economies, particularly in Africa, face disproportionate risks from high capital costs and regulatory divergence, but can leverage the African Continental Free Trade Area (AfCFTA) and the Pan-African Payment and Settlement System (PAPSS) to build regional resilience.

• The period of 2025 and early 2026 is identified as a turning point where the United States attempted to fundamentally restructure global trade and financial systems using tariffs, sanctions, and investment restrictions, primarily targeting China.
• Current trade and financial policies are estimated to be reducing global GDP growth by between $213 billion and $307 billion and increasing inflation by 0.2–0.3 percentage points.
• A hypothetical worst-case scenario involving full economic decoupling between the East and West could result in a global GDP loss of up to $6.9 trillion.
• The closure of the Strait of Hormuz on 28 February 2026, following strikes by the US and Israel on Iran, created significant economic shocks due to the volume of seaborne crude oil (25%) and LNG (19%) passing through the strait.
• African economies are disproportionately exposed to fragmentation due to shallow capital markets, high debt, and a reliance on volatile commodity exports.
• Foreign direct investment (FDI) in Africa declined by 42% in the first half of 2025, a significantly sharper drop than the 3% worldwide slowdown.
• The expansion of China's Cross-Border Interbank Payment System (CIPS) and the use of the renminbi are increasing in Africa, with countries like Algeria, Kenya, Morocco, and Nigeria now conducting a majority of cross-border transactions with China in renminbi.
• Full implementation of the African Continental Free Trade Area (AfCFTA) could potentially increase Africa's GDP by a cumulative $1.4 trillion between 2021 and 2045.
• African countries face an 'Africa risk premium' where they pay more in interest than countries with similar economic characteristics; rectifying this could save up to $74.5 billion.
• The report proposes new norms to safeguard the financial system, specifically Principle 9 regarding the integrity and reliability of data and Principle 10 regarding comparable regulatory standards for functionally similar financial activities.

APA

World Economic Forum (2026). Deepening Divides: The Cost of a More Fragmented Financial System. https://reports.weforum.org/docs/WEF_Deepening_Divides_2026.pdf

Chicago

World Economic Forum. Deepening Divides: The Cost of a More Fragmented Financial System. 2026. https://reports.weforum.org/docs/WEF_Deepening_Divides_2026.pdf.

Wikipedia

{{cite report |author=World Economic Forum |title=Deepening Divides: The Cost of a More Fragmented Financial System |date=June 2026 |url=https://reports.weforum.org/docs/WEF_Deepening_Divides_2026.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{worldeconomicforum2026deepening, author = {{World Economic Forum}}, title = {{Deepening Divides: The Cost of a More Fragmented Financial System}}, institution = {World Economic Forum}, year = {2026}, month = jun, url = {https://reports.weforum.org/docs/WEF_Deepening_Divides_2026.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }