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G20: ambitious economic goals or hollow promises?
[PARIS] G20 leaders have set ambitious goals for raising global growth, but economists see them as mostly hollow promises as countries are too busy with their own problems to contribute to rekindling global recovery.
At their weekend summit in Brisbane, Australia, the leaders of countries accounting for more than four-fifths of the world economy pledged to undertake reform measures to lift their collective growth by an extra 2.1 per cent by 2018.
The measures to boost investment, trade and competition are promised to add more than US$2 trillion to the global economy and create millions of jobs.
The pledge, coming amid a gloomy global economic outlook, has left economists cold.
Erik Nielsen, Unicredit's global chief economist, said in his weekly newsletter: "I can't help wonder where the beef is?" Meanwhile Saxo Banque economist Christopher Dembik said: "We've gotten used to G20 declarations of good intentions.
He dismissed the growth target as "completely ridiculous".
"It would have been better (to) target the countries that have the resources to invest, spend and consume," he said.
Dembik cited Germany and the United States, which he said should accept "making a temporary sacrifice to revive the global economy".
The example of Japan shows well just how difficult it will be to return to sustainable growth, he said.
G20 member Japan surprised the world Monday with data showing it had fallen back into recession despite its massive easy money policies aimed at lifting it out of a decade of deflation and lost growth.
Meanwhile, even the solid German economy is expected to see "sluggish" growth for the rest of the year, the Bundesbank said Monday.
British Prime Minister David Cameron wrote in the daily Guardian following the G20 summit that there is a "a dangerous backdrop of instability and uncertainty" in the world economy.
"We cannot insulate ourselves completely but we must do all we can to protect ourselves from a global downturn," he said in a tacit acknowledgement of the limits of the promises made by G20 leaders.
Natixis Asset Management economist Philippe Waetcher said the G20 growth target was "ambitious and clearly it won't be easy" to achieve.
"But today the behaviour of each country is quite timid in order to protect their own position," he observed.
The desire to defend national interests is most clearly visible in the policies of various central banks, which according to some economists are closer to a currency war than a coordinated rival to global growth.
The Bank of Japan decided on October 31 to step up its quantitative easing programme to stimulate the economy, and the European Central Bank has also been openly contemplating a similar massive purchase of assets to avoid deflation and recession.
"Pushing deflation onto others, that is what seems to be the marching order," said Xerfi economist Olivier Passet.
With aggressive easing of their monetary policies, central banks weaken their currencies and send those of their trading partners up.
Not only does this affect trade as the value of currencies changes, but the country with the appreciated currency also suffers a deflationary effect.
In times of normal or high inflation this effect is of little concern.
However many countries, including those sharing the euro, are flirting with falling prices that would kill growth.
Faced with the aggressive move by the Bank of Japan, Pesset said the ECB, which had been "the fall guy, seems to have decided to take to the battlefield." He estimated that "the complicity of the Americans is likely." But even "this consensual adjustment between major powers creates frictions," Pesset said.
He noted that South Korea has been forced to drop interest rates twice in the past six months in order to avoid losing too much market share.
It also "complicates a bit more the situation for emerging countries in crisis" such as Russia and Brazil as it dampens their export opportunities.
The outlook belies the G20's remit as an enlarged forum giving big emerging economies a voice in global affairs.