Russia’s invasion of Ukraine is causing profound changes to the global economy that will mean higher inflation, according to BlackRock Inc. Chief Executive Officer Larry Fink.
The war is accelerating the shift away from globalization and also causing a jump in energy and food prices, Fink said on a call with several thousand global clients Tuesday. These factors, together with what he called “poor long-term planning by global governments” will mean increased costs for consumers.
“Inflation will be higher than we expected,” Fink said. “Central banks may not have all the tools in their monetary policy toolkit to address some of these structural challenges.”
President Vladimir Putin’s war in Ukraine has triggered a stunning overhaul of global finance and business in just two weeks. Russia’s central bank has effectively been banished from the dollar system, major corporations are leaving or closing their local outposts and a swath of sanctions has been imposed across Russian companies and suppliers.
Fink spoke the same day that some of the biggest American brands -- McDonald’s Corp., Coca-Cola Co. and Starbucks Corp. -- announced they were halting operations in Russia, and as the U.S. and UK said they would stop importing Russian oil.
“Over the last week, the world has changed profoundly because of the Russian invasion of Ukraine,” Fink, 69, said, according to prepared remarks for the call that were reviewed by Bloomberg. “Geopolitics in the short term will be more important than cheaper goods.”
“This is a demonstration of the power of the capital markets: how the markets can deploy capital to those who constructively work within the system and how quickly they can deny it to those who operate outside of it,” Fink said.
Short-Term Increase
The world’s biggest asset manager never had an office or staff located in Russia, Fink said. “We have also never been a believer in Russia as an investment destination in the vast majority of our portfolios.” BlackRock did, however, invest on behalf of clients in some areas -- emerging markets indexes or actively managed natural resources strategies, for example.
Among the changes Fink predicted: Companies will likely spend more in the short term to boost their capabilities locally as they reassess supply chains stretching across the world. Germany will probably spend more on defense and on liquefied natural gas plants as Europe more broadly looks to cut its reliance on Russian energy imports.
“Creating redundancies will increase costs,” said Fink. “My view is we will see this in the next earnings cycle and that’s when we will really begin to see and better understand the impact.”
Fink said the changes will lead to better policies and planning in the long term, “and hopefully this will create a safer and better world in the years to come.” But the short-term outlook is “bumpy,” he said.
This article was provided by Bloomberg News.