According to an annual survey released on Thursday, central bank reserve managers, who are generally optimistic about the global economic outlook, believe that the biggest risk to the global economy is an intensification of geopolitical conflicts.
Two thirds of the 40 top central banks surveyed by UBS Asset Management, which oversees over $15 trillion in global foreign exchange reserves, or roughly half of all reserves, said they anticipated moderate growth and inflation in the global economy over the next five years.
In a year, 71% of respondents predicted that headline consumer inflation in the United States would be between 2% and 3%. The 2% inflation target set by the Federal Reserve.
However, the largest threat to this positive outcome, according to 87% of the reserve managers surveyed, is the continuation of geopolitical conflicts, and 41% of them stated they are diversifying their investments more across currencies and regions out of concern for a worsening of tensions between the United States and China.
Diversification has been especially beneficial for gold, whose price has reached all-time highs. Thirty percent of the respondents said they would increase their bond allocations in addition to increasing their gold exposure, with twenty-four percent having done so in the previous year.
According to Massimiliano Castelli, head of strategy and advice at UBS Asset Management, “the recent political decision to use profits from central banks of Russia’s frozen assets to finance Ukraine raises further the risk that FX reserves are no longer seen as a safe haven for central banks.”
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