G-20 Finance Ministers: Economic Recovery "Weaker" Than Hoped
The global economic recovery remains “weaker than desirable,” said finance ministers and central bank governors from the G-20 coalition of major advanced and emerging economies, following a 23-24 July meeting in Chengdu, China.
The weekend gathering comes just two months before leaders from the group are due to meet in the Chinese city of Hangzhou for their annual summit, which is being held under the theme “Towards an Innovative, Invigorated, Interconnected, and Inclusive World Economy.” The dates for the leaders’ summit are 4-5 September.
Topics on the docket during the Chengdu meeting included areas ranging from the implementation of national growth plans to the problems of the global steel sector, along with progress in supporting infrastructure-focused investment.
Updates to growth plans
Finance officials confirmed this weekend that they will be issuing updates to the growth plans agreed by leaders in Brisbane, Australia, nearly two years ago. Those national plans included over 1000 measures, the bulk of them new, aimed at raising the group’s collective GDP by approximately two percent above current trajectories by 2018. (See Bridges Weekly, 20 November 2014)
The promised updates will include “new and adjusted macroeconomic and structural policy measures that can provide mutually-supportive benefits to growth,” said finance ministers and central bank chiefs last weekend. These will be prepared in time for the September leaders’ summit.
Furthermore, these changes will also be released alongside an “accountability report” tracking how the implementation of these growth plans have worked in practice. When the plans were released in 2014, they were published online in a bid to ensure that their implementation could be monitored, with leaders agreeing to “hold each other to account” on the subject.
Just weeks ago, trade ministers from the group argued that more work and political backing was needed in order to meet this goal, particularly in light of the sluggish growth seen in both trade and investment. (See Bridges Weekly, 14 July 2016)
Indeed, the pace of global economic, trade, and investment growth has increasingly drawn scrutiny, with experts and officials alike warning that should this continue, it could exacerbate inequalities in income and wealth, complicate efforts to end extreme poverty, and put the global economy at risk of remaining stuck in a “low-growth trap.” (See Bridges Weekly, 9 June 2016 and 21 July 2016)
“Our discussions were taking place in a spirit of cooperation and willingness to tackle difficult issues,” said Christine Lagarde, Managing Director of the International Monetary Fund (IMF), after the meeting. “There was a consensus around the table that more needs to be done to share the benefits of growth and economic openness broadly within and among countries.”
UK exit vote: G-20 set for “proactive” response
Officials also discussed the vote last month by UK citizens to leave the EU, acknowledging that while the outcome has increased the global economy’s level of “uncertainty,” there is actually a space for the G-20 forum to “proactively address” the future consequences of this vote in both economic and financial terms.
“In the future, we hope to see the UK as a close partner of the EU,” they said. While the so-called “Brexit” vote sent shockwaves through financial markets when the results were confirmed on 24 June, signs have since emerged that those same markets are now beginning to recover. (See Bridges Weekly, 21 July 2016)
The government of newly-minted UK Prime Minister Theresa May has suggested that they would not aim to start formal negotiations to leave the EU before year’s end, and that the process could then continue through late 2018. Meanwhile, the referendum result is already facing domestic legal challenges, whose outcomes are currently pending.
The continued struggles of the global steel sector resurfaced during the Chengdu meeting, along with the overcapacity being seen in other major industrial sectors.
The G-20 membership includes China, the US, and the EU, among others, with those players being among the most vocal on the subject. China is the world’s largest steel producer, and has increasingly come under scrutiny in this context regarding how much of a role it should take in tackling the overcapacity problem – along with what factors are the root causes.
“We recognise that the structural problems, including excess capacity in some industries, exacerbated by a weak global economic recovery and depressed market demand have caused a negative impact on trade and workers,” says the finance officials communiqué, adding that the capacity issue is one that will need a “collective” response going forward.
The statement also faults market-distorting subsidies as contributing to the problem, along with featuring calls for improved cooperation.
The communiqué also gave further political signals toward the creation of a possible “Global Forum” on steel, which if established would include those economies that are leading producers of the metal. The idea has increasingly been raised in policy circles over the last several months.
Such a forum, they said, would work as “a cooperative platform for dialogue and information sharing on global capacity developments and on policies and support measures taken by governments.”
Just prior to the G-20 finance officials’ meeting, Chinese Premier Li Keqiang convened the heads of several international agencies for a so-called “1+6” roundtable, which aimed to address both the global economic context as well as the ongoing transitions being seen in China, this year’s G-20 host.
The 22 July meeting in Beijing brought together IMF Managing Director Christine Lagarde; World Bank Group President Jim Yong Kim; WTO Director-General Roberto Azevêdo; International Labor Organization (ILO) Director-General Guy Ryder; Organisation for Economic Co-operation and Development (OECD) Secretary-General Angel Gurría; and Financial Stability Board (FSB) Chairman Mark Carney.
Given the current state of the global economy – which they said has implications for trade; employment and social gaps; and productivity trends, among others – “it is critical to enhance economic policy coordination.”
The group then divided their press statement into comments and recommendations on the macro economy; structural reforms; innovation; trade and investment; labour and employment; China’s economic path; financial regulatory reform; and sustainable development.
Specifically regarding trade and investment, the group recommended that participants in regional trade agreements (RTAs) ensure their transparency and inclusiveness; implementing the outcomes from the WTO’s Bali and Nairobi Ministerial Conferences in 2013 and 2015, respectively; and advancing future WTO negotiations.
Furthermore, the group noted the role that the G-20 coalition has to play in this area, while warning against protectionist trends.
“We welcome continuous progress made by G-20 in trade and investment areas, including stronger functions of G-20 in coordinating trade and investment policy,” they said. Earlier this month, G-20 trade ministers adopted both a “strategy for global trade growth” as well as non-binding “principles for global investment policymaking.” (See Bridges Weekly, 14 July 2016)