The world is not entering an era of deglobalisation. It is entering an era of deep fragmentation. That is the central argument of Neil Shearing, Group Chief Economist at Capital Economics, in his book The Fractured Age — named one of the most important books of 2025 by the Financial Times.
In an interview with Naftemporiki, Shearing explains where this fragmentation is leading, what the two superpowers — the United States and China — are ultimately seeking, why Europe is struggling to keep up, and which risks — but also which opportunities — lie ahead as the world moves into 2026.
Fragmentation, Not Deglobalisation
Shearing’s core thesis is clear: the global economy is not reverting to the 1930s, nor is it retreating from globalisation altogether. Instead, it is splitting into rival blocs.
“The world is not deglobalising,” he says. “It is dividing into two centres of gravity: one centred on the United States and one centred on China.”
According to Shearing, 2026 may begin with a temporary thaw in US–China relations. Washington and Beijing could appear to move closer in the first half of the year, but this should not be mistaken for a strategic reset.
“Don’t read too much into headlines about warming relations,” he cautions. “The fundamental tensions that have been building over the past 15 years are not going to disappear. They continue to intensify beneath the surface.”
The relationship between the two superpowers, he argues, will continue to ebb and flow — alternating between phases of détente and renewed confrontation — without ever returning to the old model of deep economic cooperation.
US–China: Softer Rhetoric, Same Conflicts
In Shearing’s view, the key issue is not only how Washington and Beijing manage their rivalry, but how the rest of the world adapts to this new reality — and Europe, in particular, finds itself in a difficult position.
While the tone between the US and China may soften at times, the structural forces driving fragmentation remain firmly in place. Trade imbalances, technology restrictions, national security concerns and competing industrial strategies continue to pull the two blocs apart.
Europe, meanwhile, is increasingly pushed to respond — whether through tariffs, industrial policy or strategic alignment — even as it struggles to articulate a coherent long-term vision of its own.
Europe’s Problem: Politics more than Economics
For Shearing, Europe’s predicament does not stem from a lack of expertise or policy ideas. The problem is political will.
“It’s not that we don’t know what needs to be done,” he says, pointing to the Draghi report, which laid out Europe’s structural weaknesses in stark detail — from low productivity and underinvestment to the erosion of its industrial base. “We’ve known for years.”
The failure, he argues, lies in implementation. After more than a decade of anaemic growth, Europe has entered a vicious cycle in which economic stagnation fuels political instability — and political instability blocks the reforms that could restore growth.
“We’re 10 to 15 years into a period of very weak growth,” Shearing notes. “That has created fertile ground for populist forces on both the left and the right.”
In this environment, political movements promise easy solutions to complex problems — solutions that, in practice, make it even harder to take the difficult decisions required for long-term recovery.
Even in countries with fiscal space, such as Germany, the impact remains limited without a coherent political strategy. Growth close to 1%, as Shearing puts it, is “better than zero” — but it does not change the broader narrative.
“This is not an economic problem,” he says. “It’s a problem of political will.”
AI: Europe’s Biggest Hope — But Not a Quick Fix
Artificial intelligence represents Europe’s most significant long-term opportunity, according to Shearing — but not an immediate escape from stagnation.
“Almost the entire growth gap between the US and the euro area in 2026 can be explained by AI,” he says, forecasting growth of around 2.5% for the US versus roughly 1% for the eurozone.
In relative terms, AI is likely to entrench America’s outperformance. In absolute terms, however, Shearing is more optimistic.
“Over time, AI has the potential to lift Europe’s growth rate above the levels of the past decade,” he says, as productivity gains gradually feed into the real economy.
“Yes, I See a Bubble — But…”
Shearing does not shy away from the question dominating financial markets. “Yes, I do think we are seeing a bubble inflating around AI,” he says, drawing a parallel with the dot-com era.
Crucially, he distinguishes between the long-term economic value of the technology and the dynamics of financial markets. AI, he argues, is a general-purpose technology — comparable to electricity, computing or the internet — with the capacity to transform productivity and growth.
But history shows that such technologies also create fertile ground for excess. Investors attempt to price tomorrow’s growth today, inflating valuations before the gains materialise in the real economy.
“The dot-com bubble burst, but the technology didn’t disappear,” he notes. “Something similar is playing out now.”
As for timing, Shearing does not rule out a correction as early as 2026, but he believes valuations are not yet as extreme as in past bubbles.“There is probably still some air left — perhaps until 2027,” he says.
Greece: Continuing to Outperform
On Greece, Shearing strikes a notably more optimistic tone.
The election of Greece’s finance minister to the presidency of the Eurogroup, he says, is “emblematic of the progress Greece has made over the past decade.”
Capital Economics expects Greek growth to remain close to 2% in 2026 — well above the eurozone average — supported by declining debt, rising investment and funds from the EU’s recovery programme.
“Greece will continue to outperform the eurozone,” Shearing concludes.
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