This will no longer be the globalization we knew after the war – at least that is how BlackRock chairman Larry Fink sees the significance of the war. .
“I continue to believe in the benefits of globalization and the power of global markets, but the Russian invasion of Ukraine has brought to an end the globalization we have known for the past three decades,” said Fink, adding: ” “The invasion was a catalyst for countries and governments to unite and allow business and financial ties with Russia and launch an ‘economic war’ against Russia,” Fink writes.
“The capital markets, institutional bodies and companies have gone even further than government sanctions and shown that access to markets is a privilege and not a right. Following the Russian invasion we saw the private sector quickly eliminate long lasting businesses and relationships. The speed and power with which companies applied the sanctions was incredible. “Iconic U.S. retailers have suspended operations in Russia and financial services agencies have taken similar steps to isolate the Russian economy from the global ecosystem,” Fink added.
“These actions of the private sector have demonstrated the power of capital markets: how markets can inject capital into those who work constructively with the system and how quickly they can deny those who operate outside this path. Russia has in fact been displaced from global capital markets.”
Commenting on the effects of the war in Ukraine on the world economy, Fink noted: “Russia’s aggressiveness in Ukraine and its withdrawal from the world economy will motivate companies and governments around the world to re-evaluate their independence and re-examine the footprints of their production.
While energy dependence on Russia is in the spotlight, companies and governments will also need to look more broadly at their dependence on other countries. This may lead companies to concentrate their operation more and more in or near the country of origin, which will result in a rapid withdrawal of activity from different countries. “Other countries like Mexico, Brazil, the United States and the fathers of Southeast Asian production can benefit from it.”
The consequences, according to Fink, will be very significant: “Separation will inevitably create challenges for companies, including rising spending and pressure on profit margins. While the current balance between companies and consumers is strong and provides further relief to these difficulties, large changes in supply chains will cause further inflation.”
In his letter, Fink referred to the rising inflation environment, noting that central banks are facing a crucial decision: “Central banks will have to choose whether to live with higher inflation or whether to slow down economic activity and employment rates to bring inflation down quickly.”
Referring to the possible repercussions of the events on the crypto field, Blackrock chairman said the war would accelerate the world of digital currencies: “The war will motivate countries to re-evaluate their dependence on currency. Even before the war some governments examined the more active position in digital currencies and began regulatory preparations for the issue. Digital currencies can help lower costs in cross-border payments. This is the case, for example, when workers in other countries send money to their families. “
Commenting on the impact of the war and the energy market today on green energy adoption, Fink noted: “In response to the shock of the energy market following the war in Ukraine, many countries are looking for new energy sources. In the US the focus is on gas and oil supplies. Inevitably this will slow the global shift towards zero emissions in the near term. In the longer term, I believe that the recent events will actually accelerate the transition to green energy sources in many parts of the world. “