The Group of 20 economies have managed to keep up a show of unity by heading off a blame game between advanced and emerging economies during its meeting of finance ministers and central bank chiefs last weekend.
While their agreement to shore up their collective gross domestic product by more than 2 percent from the current forecast over the next five years still needs to be fleshed out with concrete measures, it was significant that the industrialized and emerging economies, for the first time, shared a numerical goal for growth.
The G-20 meeting was held Feb. 22-23 in Sydney amid market jitters over slowdowns of emerging economies, which had driven global growth in recent years. Since the 2008 Lehman Brothers collapse and the ensuing recession, the world’s economies have managed to make a comeback after monetary authorities of major economies introduced massive monetary easing operations.
But the U.S. Federal Reserve’s recent tapering of asset purchases to gradually wind down the easing operations has triggered an outflow of capital from emerging economies, pushing up inflation and adding downward pressure on their currencies.
A statement issued at the end of the two-day meeting said that the G-20 nations “recognize that monetary policy needs to remain accommodative in many advanced economies,” and that central banks should be “mindful of the impacts” of their monetary actions on the world economy, urging the United States to pay attention to the international repercussions of its monetary policy changes.
The communique urged emerging economies to deal with their structural problems by such steps as reducing their current account deficits. This means that advanced and emerging economies should coordinate their efforts to check market volatility.
Noting that the global economy “remains far from achieving strong, sustainable and balanced growth,” the G-20 statement said the finance chiefs have set out “an ambitious but realistic” goal of boosting the nations’ collective GDP growth by more than 2 percentage points in the next five years. Given that the current forecast by the International Monetary Fund estimates global growth in 2018 at roughly 4 percent, the G-20 goal puts the growth target five years down the road to as high as 6 percent.
An additional 2 percentage point of global GDP growth, the statement said, will generate $2 trillion in demand worldwide. The G-20 nations “will take concrete actions including to increase investment, lift employment and participation, enhance trade and promote competition, in addition to macroeconomic policies.” A lot will need to be done for the countries to map out “comprehensive growth strategies” by the time the G-20 summit convenes in Brisbane, Australia, in November.
Achieving job creation and fiscal rehabilitation simultaneously remains a major challenge for many advanced economies. As Japan has relied on monetary easing and fiscal stimulus to shore up its economy, it’s urgent that the nation develop new sources of growth in domestic demand.
Emerging economies, for their part, need to build up the foundations for robust growth. The capital outflows have exposed the shaky nature of their strength over the recent years. Countries with large current account deficits, such as Brazil, India, Indonesia, South Africa and Turkey, will have to boost private-sector investments and beef up infrastructures. China, meanwhile, faces the challenge of erasing concerns over its financial system.
The G-20 goal of higher collective growth will become feasible only when the nations face up to these challenges. They need to match the goal with concrete plans and put them in action.