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G-20 economies must stand together to attain 2% global growth target

Publication Date : 25-02-2014

 

Amid such concerns as the declining values of currencies of emerging economies, Japan, the United States and Europe should strengthen their cooperation with such emerging economies as China and Brazil to help accelerate the growth of the global economy.

With both industrially advanced nations and emerging market economies taking part, the Group of 20 finance ministers and central bank governors adopted a joint communique at the close of a two-day meeting in Sydney on Sunday.

The communique said, “Despite these recent improvements [in such countries as the United States, Britain and Japan], the global economy remains far from achieving strong, sustainable and balanced growth.”

It went on to declare a new target for raising global growth “with the aim to lift our collective GDP by more than 2 per cent...over the coming five years,” a potent message for the future of the world economy.

The G-20 meeting confirmed that each of its member economies will work out an action plan in time for a G-20 summit scheduled to be held in Brisbane, Australia, in November.

This is the first time the G-20 has set a numerical target for global growth.

The establishment of this target comes as not all is well with the global economy, although there are some bright signs. It seems the participants in the meeting agreed on the need to demonstrate their resolve to work together for sustainable growth by laying down a numerical goal.

The International Monetary Fund has released its global economic outlook, forecasting a year-on-year global growth of 3.7 per cent in real terms for 2014 and 3.9 per cent for 2015.

Fears over ‘fragile five’

The US economy is clearly on its way to recovery, while business activities in the eurozone have become positive at last. Japan’s economy, too, is continuing to gradually recover.

What is worrying is that the slowdown of emerging economies, which replaced the industrial economies in propping up the global economy after the 2008 world financial crisis, has become increasingly conspicuous.

With the US Federal Reserve Board having launched its “exit strategy” by tapering its quantitative monetary easing, the value of the currencies of the so-called Fragile Five emerging economies, including Turkey and India, are under increasing downward pressure. The depreciation of these currencies has been caused by the fact that the massive amounts of cash, which flowed into from abroad while the Fed’s extraordinary monetary easing policy was in place, are now flowing out of them. It is essential to stem the vicious cycle of the global market being pummeled by erratic situations in emerging economies and slides in their currencies.

Apparently focusing on emerging economies affected by the weakening of their currencies, the G-20 communique this time has rightly noted the need to “further strengthen...macroeconomic, structural and financial policy frameworks.” We hope to see them step up efforts to address such challenges as swelling current account deficits and runaway inflation.

Also incorporated in the communique is a passage to the effect that the United States should consider the effects of the handling of its financial policy on the global economy.

In tapering its monetary easing policy, the Fed should exercise ingenuity in its “dialogue with the market” by noting changes in emerging economies.

High expectations are placed on Japan’s role in accelerating the pace of global growth.

No time should be wasted in beefing up the third pillar of Prime Minister Shinzo Abe’s economic policy—growth strategy.

 

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