The Impact Of Geoeconomic Fragmentation On Financial Growth
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Countries are increasingly using the global financial system to advance geopolitical objectives through sanctions, investment restrictions, and other economic measures. Rising geopolitical tensions risks fragmenting the global financial system into distinct blocs, reducing efficiencies that for decades have powered economic growth.

Our “Navigating Global Financial System Fragmentation” report, developed in collaboration with the World Economic Forum (WEF), estimates that policy-driven fragmentation could cost the global economy $0.6 trillion to as much as $5.7 trillion in an extreme scenario — up to roughly 5% of current global gross domestic product (GDP) — due to reduced trade and cross-border capital flows and lost economic efficiencies. Fragmentation also could increase global inflation.

Geoeconomic fragmentation poses a greater threat than COVID-19

The report shows that the economic impact of rising geoeconomic fragmentation could surpass the disruptions caused by the 2008 financial crisis or the COVID-19 pandemic.

Amid growing geopolitical tensions, a major risk to the financial system arises less from the intended policy objectives than from the unintended consequences of policy-driven fragmentation.

The impact of fragmentation on inflation rates and GDP growth depends heavily on the policies adopted by global leaders. With a principled approach, policymakers can advance appropriate policies for their economies and societies while mitigating unintended effects on areas like living costs and global economic productivity.

Protecting the global financial system from fragmentation

The report presents a new framework to protect the global financial system from fragmentation, developed by more than 25 financial sector chief executives, academics, and other leaders. These principles and rules underpin the effective functioning of financial services globally, and their protection stands to help reduce the impacts of fragmentation in the financial system. The guidelines outline key conditions for maintaining financial system operations and market confidence, including respect for the rule of law, property ownership rights, system interoperability, and avoiding unilateral expropriation of sovereign assets.

This new report serves as a private sector call to action to protect the most essential elements of the financial system. By considering these frameworks, policymakers can safeguard national security and sovereignty while establishing the conditions for efficient capital markets and continued economic growth.