BRISBANE, Australia: G20 leaders will this weekend pledge to rev up combined growth by $2 trillion but analysts are skeptical of success with key pistons of the global economic engine such as Germany and China starting to misfire, and Japan again at risk of going into reverse.
With Barack Obama, China’s Xi Jinping and Vladimir Putin of Russia among the leaders coming to the Brisbane summit, geopolitical issues will not be far from the surface given the conflicts in Syria and Ukraine, the rise of the Islamic State group and the devastating impact of Ebola.
But host Australia has worked hard to narrow the agenda and concentrate on economic issues at a time when the United States appears finally to be kicking into gear just as challenges emerge elsewhere to the growth outlook.
“It won’t be a talkfest,” Prime Minister Tony Abbott said this week, vowing robust discussions not just on growth but on G20 priorities such as going after companies and investors that profit from the differences between tax regimes around the world.
G20 members make up 85 percent of the world economy, so have the clout to effect far-reaching change.
Australia has focused its presidency on a commitment by members to raise the level of their combined economic output by at least two percent above the currently projected level in the next five years, via domestic policy reforms, and so generate millions of new jobs.
But analysts are not convinced the rhetoric will be matched by results when several major economies are facing new headwinds, despite US growth perking up enough to allow the Federal Reserve to row back from its ultra-easy monetary policy.
‘Not that scary’
Growth remains disappointing in Europe with Germany no longer immune to the pressures that have long been buffeting some of its leading trading partners. Japan is once again throwing out huge amounts of money to prop up growth after two decades of stagnation.
Even China, the world’s economic locomotive, is starting to falter — although Xi said at a separate summit of Asia-Pacific leaders in Beijing this week that his country’s outlook was “not that scary” as it downshifts to a more sustainable rate of growth.G20 nations say some 900 measures on how to meet their goal have been agreed so far, including accelerating infrastructure investment, financial reform and encouraging free trade. But observers say the details are still missing.
Mark Melatos, senior lecturer at the School of Economics at the University of Sydney, said it was important the G20 produce tangible progress in Brisbane or risk becoming a forum for empty political statements.
“This seems to be the case with the current ‘growth and resilience’ agenda including the two percent target,” he said.
“The G20 agenda is short on policy specifics to achieve this target. It is also short on genuinely new ideas to achieve this target.
“So it’s unclear how the G20 expects to achieve the higher growth target given slower growth in Germany and China and the end of easy money in the US and UK.”
Too many vested interests?
The Organization for Economic Cooperation and Development (OECD) wants the world’s leading countries to step up measures to support flagging global growth, in particular urging the European Central Bank to overcome its reluctance against Fed-style “quantitative easing”.
But Nicholas Reece, from the Melbourne School of Government and School of Social and Political Sciences, says the G20 is hobbled by its sheer size and diversity, with members at different stages of economic development.
“Put simply, there are too many diverse competing interests at the table making it very difficult to get agreement on real reform,” he said.
The Brisbane summit will also focus on reforms to the world’s financial system, such as capital rules for banks to contain the risk of systemic failures, and ways to close tax loopholes that are used by many multinational companies.
The fight against fiscal cheats took on added significance last week with revelations that Luxembourg had given huge tax breaks to hundreds of global firms.
That cast a new spotlight on the European Union heading into the G20, with OECD chief economist Catherine Mann warning that “overall, the euro area is grinding to a standstill and poses a major risk to world
But if the G20 can deliver on its pledges, she said: “The potential pay-off from the structural reform agenda under consideration is tremendous.”