By Andreas Charalambous and Omiros Pissarides

For decades, the trajectory of the global economy was built on the deepening of trade and other cross‑border linkages. Trade barriers were declining, supply chains were expanding across the world, and production was shifting to low‑cost countries. Globalisation appeared irreversible.

Today, however, the landscape is changing dramatically.

A new reality is emerging: not de‑globalisation per se, but fragmentation. Trade, investment and technology are being reorganised along geopolitical lines, with the defining feature being the formation of competing blocs of countries.

Trade is now shaped by tariffs and other trade restrictions, industrial policies and national‑security considerations. Governments intervene actively, seeking to reduce dependence on rivals and strengthen strategic sectors. Production chains are no longer designed solely for efficiency, but increasingly for resilience.

This trend is especially visible in supply chains. Companies are shifting away from global, low‑cost networks toward partnerships with “friendly” countries or geographically closer partners. The logic is straightforward: the crises of recent years exposed the vulnerabilities of the old model.

Fragmentation also stems from intensifying geopolitical competition. The world’s largest economies (US and China) are striving for dominance in cutting‑edge technologies, such as artificial intelligence, using tariffs, subsidies and export controls as strategic tools.

The question that arises naturally is whether we are experiencing a necessary adjustment or a step backward.

The optimistic view holds that we are moving toward a more balanced world. Excessive dependence on distant markets carried unpredictable risk, therefore, a system of regional alliances based on political criteria may prove more resilient. Globalised activity will remain a core driver of growth, but in a more differentiated form.

The more pessimistic perspective warns of the costs of this new reality. Fragmentation leads to higher prices, duplicated production structures and weaker innovation. Trade barriers and geopolitical tensions reduce investment and hinder growth.

In an already fragile environment of low growth, the risks posed by these emerging trends are real. If restructuring further weakens trade and cooperation, the world may settle into an era of moderate economic expansion.

The consequences will not be purely economic. Interdependence has served as a stabilising force as it diminishes, geopolitical tensions may intensify.

The most likely outcome, however, is a more complicated and convoluted one. Connections are not disappearing, they are being reshaped. Some countries will benefit from new alliances, while others risk being left behind.

Globalisation has not run its course – it is transforming. It is becoming less homogeneous and more politicised.

For policymakers, the challenge is balance between resilience and security on one hand, and efficiency on the other. For businesses, flexibility and an understanding of political dynamics are essential.

And for economists, old assumptions require revision.

Andreas Charalambous and Omiros Pissarides are economists and the views they express are personal