The Russian invasion of Ukraine is causing profound changes in the global economy that will mean higher levels of inflation, according to BlackRock Inc. CEO Larry Fink.
The war is accelerating the move away from globalization and causing energy and food prices to jump, Fink said on a call with several thousand global clients. These factors, coupled with what he called “poor long-term planning,” by global governments “will mean higher costs for consumers.
“Inflation will be higher than we expected,” Fink said.
“Central banks may not have all the tools in their monetary system to address some of these structural challenges,” he added.
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 been effectively banished from the dollar system, large corporations are leaving or closing their local outposts, and a series of sanctions have been imposed on Russian companies and suppliers.
Fink spoke on the same day that some of America’s biggest brands — McDonald’s Corp., Coca-Cola Co. and Starbucks Corp — announced a stoppage of operations in Russia. Also, on March 8, the US and UK governments 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 remarks prepared 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 market: how markets can deploy capital to those who work constructively within the system and how quickly they can deny it to those who operate outside of it,” Fink said.
Larry Fink expects short-term rise
The world’s largest 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 most of our portfolios.” However, BlackRock has invested on behalf of clients in some areas: emerging market indices or actively managed natural resource strategies, for example. Among the changes Fink predicted: Companies are likely to spend more in the short term to build capabilities locally as they reassess supply chains that stretch across the globe.
Germany will likely spend more on defense and natural gas plants as Europe seeks to reduce its dependence on Russian energy imports.
“Creating redundancies will increase costs,” Fink said. “My view is that we’ll see this in the next earnings cycle and that’s when we really start to see and better understand the impact.”
Fink said the changes will lead to better policies and long-term planning, “and hopefully this will create a safer and better world for years to come.” But the short-term outlook is “uneven,” he said.