In an all-too-familiar replay, finance ministers and central bank governors of the Group of 20 countries meeting in Shanghai drove home the complexities of formulating a collective response to the persisting global slowdown in growth, even as the International Monetary Fund (IMF) reiterated its call for coordinated action at the multilateral level to contain risks to the real economies from market turbulence. The Fund’s prescription ahead of the gathering, as in the recent past, lays particular stress on fiscal stimulus measures to boost demand, as against over-reliance on monetary policies. But the reaction from national capitals was along expected lines. U.S. Treasury Secretary Jacob Lew pressed hard a long-standing concern of Washington that China ought to increase domestic consumption and Germany adopt fiscal stimulus. His counterpart in Berlin, Wolfgang Schaeuble, was equally categorical as he ruled out his country’s support for a fiscal stimulus and instead continued to insist on structural reforms as the remedy. Mr. Lew even suggested, ahead of the Shanghai meet, that it may be a case of financial markets misreading the situation on the state of the real economy.
Despite the strong divergence of perceptions that have long underpinned the group’s overall approach, their promise in Shanghai to refrain from a competitive devaluation of currencies to promote exports could go some way to soothe investor sentiment. Such an assurance is significant in the light of the 4 per cent depreciation in the value of the renminbi last year that set off turmoil in global stock markets and a flight of capital from the country. Currency volatilities could continue to pose concerns as emerging economies experienced a slowdown in 2015 — most notably Brazil, and China, which earlier this decade overtook the U.S. as the world’s largest trading nation. The economic recession in Brazil, the worst in over a century, and the combined effects of the collapse of Chinese imports into Latin America, could well have had a significant impact on world trade, which contracted to its lowest since the global financial crisis, according to the World Trade Monitor of the Netherlands Bureau for Economic Policy Analysis. Yet, there is good evidence of the G-20’s capacity for concerted action. In 2014, it pledged to take steps to raise the group’s gross domestic product by an additional 2 per cent by 2018. The measures implemented so far would cause an increase of just 0.8 per cent by that deadline. The current situation should lend greater urgency not merely to achieve the goal, but to extend the measures into other areas that have been identified for common action. The political engagement from the G-20 in the wake of the 2008 global meltdown was immense. That resulted in the fiscal stimulus, the stabilisation of the banking sector and the injection of capital into international financial institutions. The rich and emerging economies should summon the resolve and the will to promote a more equitable international order.
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