In Sydney, Australia today, the Central Bank Governors and Finance Ministers of the G20 pledged $2 trillion in extra worldwide growth, by implementing policies to expand their countries’ collective GDPs (gross domestic products) by 2% above current estimates over the next five years.
The G20, or Group of 20, consists of the twenty largest economies in world; they account for approximately 85% of global GWP (gross world product).
It consists of the European Union and the following 19 nations: Australia, Canada, Saudi Arabia, the United States, India, Russia, South Africa, Turkey, Argentina, Brazil, Mexico, France, Germany, Italy, the United Kingdom, China, Indonesia, Japan and South Korea. Spain participates in all the meetings as a permanent guest.
This year Australia is acting as president of the G20, after Russia in 2013 and ahead of Turkey in 2015.
G20 aims to add tens of millions of jobs
According to the Treasurer of the Commonwealth of Australia, Joe Hockey, these policies could translate into tens of millions of extra jobs.
In their first step towards achieving this target, each nation will deliver a comprehensive growth strategy during the Brisbane Leaders Summit in November, 2014.
In other words, so far there is no road map on how countries intend to get to the agreed target or repercussions if they are not achieved. The aim was to agree on a goal now and then each nation develop a growth strategy and action plan.
“There is no room for complacency. Each country will play a significant part in achieving our common target. We know reform is hard. We have to earn economic growth and new jobs. It will take concrete actions across the G20 to boost investment, trade, competition and employment opportunities, as well as getting our macroeconomic fundamentals right.”
Hockey added that the G20 Finance Ministers and Bank Governors had an extensive discussion about the common challenges the group of nations face, specifically in boosting investment, particularly in infrastructure.
The G20 financial leaders also talked extensively about the global economy, and focused on monetary policy. “We have committed to enhancing cooperation, increasing communication and building resilience in our financial markets and our economies. In particular, it’s about enhancing cooperation and communication between countries as well as building resilience in our economies and financial markets.” Hockey added.
Official G20 Finance Ministers and Central Bank Governors meeting (Official group photo: source G20)
US urged to ratify the 2010 IMF reforms
All twenty nations must ratify the 2010 reforms put forward by the International Monetary Fund (IMF). The Australian government urges the United States to do so before the next G20 meeting.
The target was proposed by Hockey, and it stemmed from an IMF paper that had been prepared for the G20 Sydney meeting. According to the IMF, if certain structural reforms were implemented, the world economy would grow by an extra 0.5 percentage point each year for the next five years.
The IMF forecasts GWP will grow by 3.75% in 2014 and then by 4% in 2015. The financial leaders discussed which structural reforms should take priority for sustainable growth.
Not all countries felt as keen as Hockey regarding the 0.5% annual target. After the meeting, Germany’s Finance Minister Wolfgang Schäuble said:
“What growth rates can be achieved is a result of a very complicated process. The results of this process cannot be guaranteed by politicians.”
President of Germany’s Bundesbank described the quantitative targets as “problematic.”
World economic recovery welcomed
In a communique, the G20 welcomed recent signs of a rebound in the global economy, in particular, growth in the United Kingdom, Japan and the US, the resumption of growth in the Eurozone, as well as continued steady growth in China and several emerging nations. It appears that some major tail risks have diminished.
Even so, the Finance Ministers and Central Bank Governors warned that the world economy is still nowhere near achieving strong, sustainable, and balanced growth. There are still some weaknesses within the global economy, especially in demand, while current growth rates are not yet high enough to bring unemployment down significantly.
Fed tapering and emerging market volatility
The G20 Financial leaders collectively wrote:
“Recent volatility in financial markets, high levels of public debt, continuing global imbalances and remaining vulnerabilities within some economies, highlight that important challenges remain to be managed.”
Financial markets around the world had wondered whether there might be friction between the advanced and emerging economies, but the meeting appears to have progressed without any serious disagreements.
Reuters quoted Huw McKay, a senior economist at Westpac, who said “The text of the communique indicates that the standard U.S. line that what is good for the core of the world economy is good for all seems to have won out.” He noted there were no inflammatory comments regarding recent market volatility.
Some concern was expressed by the emerging economies that the US Federal Reserve should consider the impact of its stimulus program bond-buying tapering, which they say has led to an exodus of capital in some of the more vulnerable markets.
Janet Yellen, the new Chairman of the US Federal Reserve, said earlier this month that the US central bank’s policy is aimed at domestic economic issues and cannot be held responsible for market volatility in other parts of the world.
According to the G20 communique:
“All our central banks maintain their commitment that monetary policy settings will continue to be carefully calibrated and clearly communicated, in the context of ongoing exchange of information and being mindful of impacts on the global economy.”
G20 regrets BRIC countries’ lack of progress in IMF voting power
The larger emerging economies, including the BRIC countries (Brazil, Russia, India and China) had been lobbying for a long time for greater voting power in the IMF to reflect their current much larger share of GWP. Some progress was being made in this area; changes had been agreed in 2010, but were blocked by the US Congress. The G20 says it “deeply regrets” this lack of progress.
According to U.S. Treasury Secretary, Jack Lew, the G20 is making good progress in plans to ensure that multinational firms pay their fair share of tax. Many G20 citizens disagree that companies such as Google, Starbucks and Apple should continue using loopholes to avoid paying hundreds of billions in tax globally.