Investors across the world should prepare for years of rising inflation as globalization wanes, says Larry Fink, chief executive officer of global investment giant Blackrock Inc.
During an investment summit in Toronto this week, Mr. Fink reiterated his message to shareholders earlier this year that the war in Ukraine will have many long-term economic consequences as deglobalization pushes inflation even higher.
Russia invasion of Ukraine – and its subsequent decoupling from the global economy – will prompt companies and governments worldwide to re-evaluate their dependencies on any single country, said Mr. Fink, particularly in manufacturing.
Blackrock is one of the world’s largest investment managers, overseeing about US $ 10-trillion in assets. Mr. Fink, who is also the company chair, said the combined concern over trade partners, along with the current supply-chain crisis and rising inflation rate, will change the “course of globalization as we know it.”
“It is not the end of globalization but we are going to see globalization in a whole different vein,” he added. “And let’s be clear, this is a two- to four-year transition – a very rocky transition – where we are going to have persistent inflation.”
And it’s the type of inflation, Mr. Fink says, central banks do not have the tools to fix.
“Central banks have the tools when demand is excessive, and they can raise rates and reduce demand,” he said. “Most of the inflationary pressure is supply-driven.”
Rather than offshore manufacturing and assembly functions, companies are now starting to onshore, or move operations closer to their home countries. Countries such as Mexico, Brazil, the United States and Indonesia could stand to benefit, Mr. Fink said.
“The biggest dependency right now is the role China has in manufacturing and similarly in robotics,” Mr. Fink said to a hybrid audience of in-person investment advisers and online attendees.
“This is not an anti-China statement, but every company globally right now is re-evaluating how dependent they should be on one country as a source of really excellent manufacturing.”
RBC chief executive David McKay, who was part of the fireside chat with Mr. Fink, said that while Canada’s largest trade agreement is with the United States, the global realignment in trade supply routes and trade agreements will be inflationary for everyone.
“We’re certainly feeling that inflationary impact on the geopolitical side, and the supply-chain realignment will further fuel that as we adjust and look to invest capital in hiring and training workers in new supply-chain locations.” McKay said.
Part of the opportunity for Canada lies in its strong immigration rate, which can help companies adjust to labor shortages. Mr. Fink pointed out that benefit is not as great in the United States, where immigration numbers have fallen over the past five years. About two million fewer immigrants entered the country between 2017 and 2022.
One way to approach the current situation would be a collaboration between Mexico, Canada and the United States to jointly address their supply-chain shortages, Mr. Fink says.
“We are surrounded by two oceans. We have less geopolitical risk than any other place in the world. We have natural resources that are as strong as any place in the world and we have great labor forces in all three countries, ”Mr. Fink said.
“I would love to see a moment where we have our three political leaders coming together, sitting down and saying, ‘How do we fortify?’ ”
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.