Laurence D. Fink, chairman and CEO of the world’s largest money manager, on Tuesday called fiscal policy — targeted at infrastructure spending — the answer for a toxic brew of economic and political challenges coming to a head now globally.
Briefing reporters on the sidelines of a BlackRock investor conference in Hong Kong, Mr. Fink expressed hope that G-7 leaders gathering in Japan on May 26 will recognize the “key pivot point” facing a global economy that’s become addicted to monetary stimulus over the past eight years.
“Bold” central bank moves saved the world economy following the global financial crisis, but eight years on, the developed world’s one-sided reliance on monetary policy has come to cause more harm than good, Mr. Fink said.
“If we have more of the same, we’re going to be writing about how the world economy is slowing down very rapidly next year,” he predicted.
The political stakes are high as well, said Mr. Fink, who tied the recent popularity of “extreme party representatives” in the U.S., such as Donald Trump and Bernie Sanders, and in the Philippines and Spain to economic factors such as growing income inequality and declining job opportunities in those countries.
There are “30% to 40% of the population of various countries — of the United States, Spain, the U.K — where these families have lost hope,” where they’re working harder, earning less and seeing less-certain prospects for their children, he said.
In part, that economic uncertainty results from technological change, which is reducing the need for “human input” across all industries, Mr. Fink said.
Investment in infrastructure, powered by a “heavy dose of fiscal policy,” is the answer to a range of the toughest problems facing developed countries today, Mr. Fink said.
Infrastructure spending can lead to “job creation for those that have lost out,” while setting the stage for better economic growth over the long term, he said.
Meanwhile, with aggressive fiscal policy measures by Germany, the U.K., Japan, China and the U.S., central banks would be able to raise interest rates “in a systematic way that would not disrupt the economy,” Mr. Fink said.
The outlook for pension funds and insurance companies will depend greatly on how quickly G-7 countries fire up their fiscal engines, Mr. Fink said.
If developed markets governments don’t ratchet up fiscal policy at this point, it will put enormous pressure on pension funds, which will face ever steeper deficits worldwide because of reinvestments at low interest rates, Mr. Fink said.
“I would have a much darker view if I didn’t believe governments are going to act,” Mr. Fink said. “I have a strong view that governments are going to act,” he said, adding “They must act.”