When President Trump attended the G20 meeting in Hamburg, Germany, the aspects publicly reported were mainly uncontrolled demonstrators, burning Porsche cars and police at the end of their rope. Few benefits were attributed to the meeting. That is incorrect.
BY WALL STREET JOURNAL, NOVEMBER 10 2014, 19:22
The (politically bruised) leader of the world’s largest economy and the head of the global financial counsellor honed their message of co-ordination at a White House meeting last week ahead of the Asia-Pacific Economic Co-operation forum in Beijing and a meeting of the Group of 20 largest economies in Brisbane.
The Obama administration and the IMF are worried Europe, Japan, China and other major emerging markets aren’t doing enough to spur growth.
Just as the US economy shows signs of gathering steam, they’re concerned that dimming overseas demand and a strong dollar will put the brakes on American growth.
The eurozone faces rising risks of a third recession in five years. China is trying to balance a slowdown with the need to overhaul its economy.
Japan’s central bank is being forced to goose growth with more easy-money policies because other government efforts aren’t enough to juice inflation and revive prospects.
Emerging markets are facing dwindling growth outlooks, failing to live up to vows to restructure their economies. And the economic and political crises in Ukraine and the Middle East, which threaten to turn into much more dangerous regional conflagrations, are fuelling investor anxieties.
That leaves the US doing the heavy lifting for the global economy.
Mr Obama and Ms Lagarde are on the same page on many of the policy problems and solutions.
“They discussed the global economic recovery and the IMF’s role with regard to US national security priorities, including financial support for Ukraine and countries in the Middle East and North Africa,” a White House official said.
The official said the two also conferred on emergency financing for Liberia, Sierra Leone and Guinea, the three countries worst-hit by the deadly Ebola outbreak. The IMF has said the beleaguered and impoverished nations will need more international aid to fight the epidemic.
The US and the IMF back more stimulus by the European Central Bank to spur eurozone growth.
Both are advocating governments around the world spend more on infrastructure as a way to inject more cash into their economies.
They’ve both criticised regional powerhouse Germany for not doing enough to spark eurozone growth. They’re fretful Tokyo isn’t going to deliver on a promised economic restructuring, setting the stage for a potential eruption of Japan’s Mt Fuji of debt.
The Obama administration and the IMF are concerned that major economic overhauls in countries such as Brazil, India and China aren’t moving ahead fast enough to ensure global consumption can fuel the world’s economy.
And they are also likely to back a push for greater financial oversight, shifting focus from the traditional banking sector to the largely unregulated financial sectors where economists worry new crises could be developing.
The IMF’s top financial official, José Viñals, warned last week that shocks, such as from another European recession, the Ukrainian crisis or unexpected US rate hikes, could trigger major market sell-offs.
“The need for action is now,” Mr Viñals said.
Monetary policy can’t be the only game in town, he said.
“It needs to be better supported by … fiscal policies, structural policies and financial policies.”
In trying to win over his peers on a decisive growth strategy, Mr Obama will face a political headwind: he has lost some clout in the realm of economic diplomacy in his administration’s failure to secure congressional approval for governance changes at the IMF.
The five-year-old deal would restructure the emergency lender by giving emerging markets greater power at the fund, more in line with their burgeoning economic heft in the world.
Feeling disenfranchised, key emerging markets are crafting strategies to bypass Washington and its leverage at the fund, including replicating the IMF’s emergency-lender role with new cash reserve pools.
“The US failure to get supporting legislation for IMF quota reform is a huge black eye,” said Fred Bergsten, senior fellow and founding director of the Peterson Institute for International Economics.
By highlighting “the IMF’s role with regard to US national security priorities,” the White House is likely signalling that Mr Obama will redouble efforts at home to get the governance changes through Congress.
It’s still an open question, however, whether the new Republican majority will help or hinder the president’s plans.
A measure of inflation for the members of the Group of 20 was published for the first time today. According to a group of international institutions, the annual rate of inflation was 3.2% in July and fell to 3.0% in August.
Rates fell in many large developing economies such as China, India and Brazil in addition to the U.S. and the EU. Japan and Indonesia are the only countries whose inflation rate increased in August. The member with the lowest inflation rate was Japan at 0.9% and the highest was India at 10.7%.
If inflation rates continue on a downward trend, central banks will find reassurance in keeping their reactive monetary policies from the 2008 financial crisis intact. While the global economy has been recovering, it is feared that the future U.S. budget policy may set it aback.
What are your thoughts on the G-20 inflation rate? Post in the comment section below!
One of the major topics during this week’s G20 summit is the continued fight against global trade protectionism. Leaders vowed to limit protectionist actions and encourage trade to aid the global economic recovery. However, as a new European Commission report details, over 150 new trade restrictions were implemented throughout the world just last year and only 18 have been resolved.
The report highlights:
- “Brazil, Argentina, Russia and Ukraine stand out for having applied the heaviest tariff increases”
- “Brazil accounted for more than one-third of restrictions related to government procurement, followed by Argentina and India.”
- “The EU’s partners have also continued applying stimulus measures, in particular supporting exports”
- Some countries are protecting their domestic industries from foreign competition, Brazil and India are most notable.
To read more please click here.
What is your take on trade protectionism? Post your opinion in the comment section below!
The bilateral meeting between President Obama and Russian President Vladimir Putin initially scheduled in Moscow in September, before the Group of 20 summit, has been canceled. The cancellation was in retaliation to Russia granting NSA leaker Edward Snowden a year’s asylum in the country last week.
With the Group of 20 summit scheduled in St. Petersburg in September, it remains unclear whether US-Russia relations will have been resolved by then.
What are your thoughts on the matter? Will this disagreement negatively affect the G-20 summit on trade relations? Post your thoughts in the comment section below!