ANKARA
“Global growth needs a kickstart,” exclaimed Canadian Finance Minister Joe Oliver, just before the G20 meeting started on Feb. 9.
It might have been helpful if he had indicated where we have to kick. World leaders gathered in Istanbul in close discussions with economists and analysts and all agreed that global growth is insufficient.
There is, however, almost no consensus about what policies must be adopted to spur that growth.
“We managed to contain the immediate effects of the Great Recession, but as stated in Brisbane by the leaders of the G20, growth is still slow, uneven and not delivering the jobs needed. Meanwhile, the potential of our economies has fallen and inequalities keep rising all over the world,” said Turkish Prime Minister Ahmet Davotoglu, in his opening message to the first meeting under the Turkish presidency of the G20.
That is the challenge, but there was little agreement about the policy to overcome it.
At the beginning of the conference, International Monetary Fund Managing Director Christine Lagarde warned that the decline in oil prices was not sufficient by itself to stimulate global growth – which the IMF forecasts will be only 3.5 percent in 2015 and 3.7 percent in 2016.
“The oil price decline, which reflects to an important extent higher supply, mainly a rise in production in the United States and OPEC’s decision to maintain current production, will boost global growth by lifting private demand. However, this boost is projected to be more than offset by negative factors, including the drag in investment associated with diminishing medium term growth prospects,” Lagarde said in a paper released at the conference.
Lagarde called for infrastructure investment and accommodative monetary policies to kickstart growth. These should be combined with structural reforms, such as easing labor market restrictions. She praised the European Central Bank’s program of quantitative easing intended to stimulate growth in Europe with a loose monetary policy.
But U.S. Treasury Secretary Jack Lew proposed a different approach at the G20. He called for Germany and others in Europe to engage in deficit spending. Germany, in particular, should make an effort to see that other economies in the world besides that of the United States become strong.
"In Europe, there's a need for more fiscal policy. There's a demand shortfall. Different countries have different amount of fiscal space. With the fiscal space, they need to use it to grow demand," Lew told reporters at the conference. He commented that the ECB’s quantitative easing program would not be enough by itself to kickstart growth.
None of these views are shared by German Finance Minister Wolfgang Schauble. Schauble thinks that Eurozone growth has already had its kickstart, and “is going along pretty well.” His government has previously declined proposals for increased spending to stimulate growth: “No short-term actions,” has been the German government’s watchword.
UK Chancellor of the Exchequer George Osborne called for “forceful” economic policies when speaking to reporters at the conference. “We need forceful fiscal policies and forceful structural reform,” Osborne said. He complained that European governments “were not doing enough” to stimulate growth, and advocated infrastructure investment.
Turkish Deputy Prime Minister Ali Babacan had advocated a commitment by G20 partners to specific national investment targets as part of efforts to boost economic growth. None of the G20 members, however, were prepared to make that kind of commitment.
This became clear in the final statement made by the G20, released on Wednesday, which brings many of these different policy proposals together.
“Prolonged low inflation alongside sluggish growth and protracted demand weaknesses in some advanced economies may increase the risk of persistent stagnation. Accordingly, we will continuously review our monetary and fiscal policy settings and act decisively, if needed,” the statement said. This allows a considerable freedom of policy adoption, observers noted.
“We agree that consistent with central banks’ mandates, current economic conditions require accommodative monetary policies in some economies. In this regard, we welcome that central banks take appropriate monetary policy action,” the statement said, adding that the ECB quantitative easing program “will further support the recovery in the euro area.”
Into this welter of economic proposals came, on Wednesday, a gloomy report from international credit rating agency Moody’s on how “headwinds from the Euro area, China, Japan and Russia will hold back economic activity. Moody’s Global Macro Outlook report predicted that the low price of oil will not provide much space for growth, and forecast a meager 3 percent global growth this year, with only 1 percent for Europe.
Moody’s warned that growth in China, which is critical for global demand, will slow despite cheaper oil. The gradual and ongoing economic slowdown in China will continue, the report said, as higher energy taxes and government-controlled prices in some energy and transport sectors will dampen the impact of lower oil prices.
Perhaps further discussions at future G20 meetings will lead to a more unified approach to policy.
“But what seems to characterize most of the economic reasoning at and around the G20 is a lack of innovative thinking," said Bessma Momani, an economist with the Centre for International Governance Innovation in Waterloo, Canada.
Many of the policy proposals at the conference seem to be based on ideas that the politicians can defend when they get back home, Momani wrote in a blog on the organization’s website, and this may explain the lack of more striking and original proposals.
