This is a quick about-turn for Davos man Larry Fink, formerly a great suporter of globalization. It seems that he is quick to embrace whatever is fashionable. He is right this time, though. Both the economic war on Russia and global supply chain breakdowns have hit hard at globalization thinking. It has been thoroughly overtaken by reality.
BlackRock Chief Says Ukraine War Marks End to Globalization
It reminds me of a saying attributed to the aristocatic former British PM Harold Macmillan, who was known for his pragmatism, wit and unflappability. A journalist once asked him what could throw his government off-course in the next two weeks. He replied: "Events, dear boy, events"
Larry Fink, chief executive of BlackRock, the world’s biggest asset manager, said that the war in Ukraine will put an end to globalization as governments and businesses cut ties with Russia, while warning that a large-scale reorienting of supply chains will be inflationary.
“The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades,” Fink wrote in a March 24 letter to shareholders, in which he noted that the Russian offensive in Ukraine had catalyzed nations to sever financial and business ties with Moscow.
“United in their steadfast commitment to support the Ukrainian people, they launched an ‘economic war’ against Russia,” Fink wrote.
Russia has been hit with crippling sanctions over what it calls a “special military operation” in Ukraine. The measures have targeted Russian banks and wealthy oligarchs, there’s been a closure of airspace to Russian planes, and the export of key technologies has been banned.
The sanctions also include a freeze on around $300 billion of Russia’s central bank hard currency reserves, an unprecedented move that Russian Foreign Minister Sergey Lavrov denounced on March 23 as “theft.”
Fink noted in his letter that capital markets, financial institutions, and companies have gone beyond government-imposed sanctions, moving quickly to terminate longstanding business and investment relationships.
He predicted that Russia’s decoupling from the global economy will prompt governments and companies to re-evaluate their manufacturing and assembly footprints more generally and reconsider their dependency on other nations.
“This may lead companies to onshore or nearshore more of their operations, resulting in a faster pull back from some countries,” Fink wrote.
There will be challenges for firms as they seek to rejig supply chains, he said.
“This decoupling will inevitably create challenges for companies, including higher costs and margin pressures.”
“While companies’ and consumers’ balance sheets are strong today, giving them more of a cushion to weather these difficulties, a large-scale reorientation of supply chains will inherently be inflationary,” he added.
Fink said central banks find themselves in a challenging moment, weighing how fast to raise rates in a bid to curb surging inflation, which has been exacerbated by the conflict in Ukraine and the associated energy price shocks.
“Central banks must choose whether to live with higher inflation or slow economic activity and employment to lower inflation quickly,” he said.
The Federal Reserve last week hiked rates for the first time since 2018 and Fed chair Jerome Powell said on Monday that the U.S. central bank must move “expeditiously” to raise rates and possibly “more aggressively” to keep an upward price spiral from becoming entrenched.
Annual inflation in Russia accelerated to 14.5 percent as of March 18, the fastest pace since 2015, the economy ministry said on Wednesday, as the battered rouble sent prices soaring amid biting Western sanctions.