The World Economic Forum has issued a stark warning: the economic splintering now underway will drain up to $213–$307 billion annually from the global economy (approximately €196–€282 billion), and Italy—as a mid-sized export-driven economy deeply embedded in both European and transatlantic supply chains—sits squarely in the crossfire.
Why This Matters
• Export Risk: Italy's manufacturing exports, especially in machinery and luxury goods, face higher tariffs and uncertain access to traditional markets.
• Inflation Bump: The WEF estimates fragmentation adds 0.2–0.3 percentage points to global inflation, eroding purchasing power for Italian households already grappling with elevated living costs.
• Emerging Markets Hit Harder: Italian firms active in Africa, Latin America, and Asia could see partner economies lose up to 10.7% of output in extreme scenarios, crimping demand for Italian exports.
• Worst-Case Scenario: If fragmentation escalates, global losses could hit $6.9 trillion (approximately €6.3 trillion)—equivalent to 6.4% of world GDP—more than the entire economy of any nation except the United States and China.
The numbers come from the "Deepening Divides" report released by the WEF on 4 June 2026, developed in partnership with consultancy Oliver Wyman. The analysis marks the second instalment in the Forum's fragmentation series and arrives as policymakers in Rome and Brussels weigh how to shield Italy's open economy from the fallout.
What Fragmentation Actually Means
Geoeconomic fragmentation is no longer an abstract policy debate. It describes the active use of tariffs, investment restrictions, payment system barriers, and retaliatory measures that governments are deploying at a scale unprecedented in the modern era. The period spanning 2025 and early 2026 represents a turning point, according to the WEF, when economic statecraft moved from the margins to the centre of international relations.
What sets this wave apart is its scope. Fragmentation is no longer confined to obvious geopolitical rivals. Instead, it is fracturing alliances that held firm for decades. The United States, European Union, Canada, Japan, and South Korea—traditionally aligned partners—are now imposing restrictions on one another, raising costs and dismantling predictability for businesses that relied on seamless cross-border operations.
For Italy, this shift is especially painful. The country's €550 billion in annual goods exports depend on stable rules, open markets, and integrated supply chains. Machinery manufacturers in Emilia-Romagna, fashion houses in Lombardy, and automotive suppliers in Piedmont all operate on the assumption that products can move freely, payments clear instantly, and contracts hold across borders. Fragmentation undermines every one of those assumptions.
The Price Tag: From Billions to Trillions
Under the baseline scenario outlined by the WEF, fragmentation is already costing the world economy between $213 billion and $307 billion per year. That figure reflects the direct impact of current policies: higher tariffs on goods, restrictions on foreign investment, and the administrative burden of navigating a patchwork of new regulations.
But the baseline is the optimistic case. In a severe escalation scenario, where blocs retaliate in waves and financial systems begin to decouple, global losses could reach $6.9 trillion annually—a sum larger than the entire output of any nation except the two largest economies. Italy, as part of the European Union, would not escape. The WEF projects that fragmentation erodes real wages across skill levels, with the United States among the hardest hit, but European workers face similar pressures as consumer prices rise faster than incomes.
Inflation is already feeling the squeeze. The report estimates that current fragmentation policies have added 0.2 to 0.3 percentage points to global inflation. For Italian households, that translates to higher grocery bills, costlier imports, and diminished savings. For businesses, it means squeezed margins and tougher decisions about where to invest next.
Emerging Markets Face the Steepest Losses
Italy's economic ties extend far beyond Europe. Italian companies source raw materials, manufacture components, and sell finished goods across Africa, Asia, and Latin America. The WEF report warns that emerging and developing economies (EMDEs) outside the main geopolitical blocs face the most severe consequences.
In an extreme fragmentation scenario, these countries could see output fall by 10.7%, nearly double the global average decline. Structural weaknesses—shallow capital markets, heavy reliance on foreign investment, and weaker institutions—amplify their vulnerability. For Italian exporters, that means shrinking demand in markets that have been growth engines for the past two decades.
The trend is already visible. Foreign direct investment into emerging markets has been declining, and new tariffs on their exports are accelerating the slide. However, the rise of South-South trade—commerce between developing nations—offers a partial buffer. Italian firms that pivot toward these growing corridors may find opportunities, but only if they move quickly and intelligently.
What This Means for Italian Businesses and Investors
Italian companies face a strategic recalibration. Supply chains optimized for cost efficiency no longer suffice. Firms must now factor in geopolitical exposure, regulatory unpredictability, and the risk that a supplier or customer suddenly becomes inaccessible due to sanctions or trade restrictions.
The fashion and textile sector, a cornerstone of Italy's export economy, is particularly exposed. Agreements like the African Growth and Opportunity Act (AGOA), which facilitated low-cost sourcing from African nations, are under pressure. Disruptions to these arrangements force Italian brands to seek alternative suppliers, often at higher cost and with longer lead times.
The machinery and automotive sectors face parallel challenges. Tariffs on intermediate goods raise production costs, while investment restrictions limit access to critical technologies and markets. Italian firms that rely on just-in-time delivery and tightly integrated European supply chains must now build redundancy and geographic diversification—expensive adjustments that squeeze profitability.
For investors and financial professionals in Italy, fragmentation introduces new layers of risk. Payment system interoperability—the ability to move money seamlessly across borders—is under threat. The WEF notes growing pressure on the foundational principles of global finance, including the independence of fiscal and monetary policy and the integrity of public data. Sanctions, payment restrictions, and currency fragmentation could make it harder to settle transactions, price assets, or hedge exposure.
Five Actions to Limit the Damage
The WEF proposes a five-point action plan to contain the costs of fragmentation:
Strengthen Global Economic Governance: Reinforce multilateral institutions and rules to prevent unilateral escalation.
Increase Policy Predictability: Governments should signal intentions clearly and avoid sudden, disruptive measures.
Enhance Payment System Interoperability: Maintain the ability to settle transactions across borders, even amid political tensions.
Facilitate Digital Currency Integration: Develop frameworks that allow digital payment systems to operate across jurisdictions.
Preserve Financial System Integrity: Protect the independence of central banks and the reliability of public economic data.
None of these measures will be easy to implement, especially in a climate where economic statecraft is seen as a tool of national power. But the alternative—a world fragmented into isolated, inefficient blocs—carries costs that no economy, including Italy's, can afford.
The Road Ahead
Italy's government and the European Union institutions in Brussels face difficult choices. Protecting strategic industries and supply chains is necessary, but overreaction risks accelerating the very fragmentation the WEF warns against. Italian policymakers must balance security concerns with the economic reality that openness has driven prosperity for decades.
For businesses, the message is clear: assume less, diversify more. Companies that cling to pre-2025 assumptions about market access and regulatory stability will find themselves wrong-footed. Those that invest in resilience—building alternative supply routes, deepening ties in emerging South-South corridors, and hedging geopolitical risk—stand a better chance of navigating the turbulence ahead.
The WEF's "Deepening Divides" report is not a prediction of inevitable collapse. It is a warning with a price tag. Whether the world pays $213–$307 billion per year or $6.9 trillion depends on choices made now—in Rome, Brussels, Washington, Beijing, and every capital in between.
