After decades of increasing global economic integration, the world economy is facing fragmentation risks. The Covid-19 pandemic has exposed the vulnerability of the global production network. Geopolitical tensions and military conflicts involving major countries are fracturing the world economy into blocks. Pressures on labour markets, especially in advanced economies, have put globalization in the spotlight, reinforcing protectionist attitudes. The risk going forward is that international trade and capital flows will be progressively driven by geopolitical considerations rather than comparative advantages. This might raise volatility, reduce growth prospects, and alter the nature of the international monetary system.

Has the growth of cross-border trade, capital, information and people flows gone into reverse? Is globalization giving way to regionalization? Have these trends changed the nature of spillovers across countries? And what are the implications for monetary, fiscal, and macroprudential policies?