G20 AIMS TO ADD $2TN TO GLOBAL ECONOMY / THE FINANCIAL TIMES

February 23, 2014 8:10 am

G20 aims to add $2tn to global economy

By Jamie Smyth in Sydney

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©Bloomberg

The world’s biggest economies have agreed to target reforms aimed at adding more than $2tn to the global economy over five years, marking a shift in emphasis at G20 level from championing austerity to promoting growth as the financial crisis recedes.

“We will develop ambitious but realistic policies with the aim to lift our collective GDP by more than 2 per cent above the trajectory implied by current policies over the coming five years,” said ministers in a joint G20 communiqué.

“This is over $2tn more in real terms and will lead to significant additional jobs,” it said.
Jack Lew, US Treasury secretary, said there was a world of difference in the orientation of the G20 talks held this weekend, which were focused on growth, compared with last year or the past few years when ministers debated austerity.

“If you look where we were a year ago debating austerity. This was a debate about how can we work together to share best practices and develop an approach where our individual economies can grow and the global economy can hit the objective that is set forth in this text,” he said.

However if there was unity over growth at this weekend’s meeting of G20 finance ministers and central bankers, there was less harmonious mood music on the US move to end an era of ultra-loose monetary policy.

Central bankers in some of the big emerging markets, such as India’s Raghuram Rajan, have hit out at selfish policies pursued by the US and developed countries that claiming they lead to turmoil in their countries.

But there was no major shift in position on the issue with ministers merely reiterating their commitment for monetary policy among G20 members to be “carefully calibrated and clearly communicated”.

The G20 combines the biggest industrialised and developing countries, which account for about 85 per cent of the global economy. Since the financial crisis struck in 2008 it has become the premier troubleshooter, although its effectiveness has been questioned by participants as the crisis recedes.

The setting of a numerical target for future growth represents a change of strategy at G20 level, which has previously rejected setting hard targets, for example on fiscal adjustments.

But amid scepticism from Germany, the European Central Bank and some other participants the growth target remains largely aspirational with no details on what reforms would be implemented or penalties for failing to achieve the target.

“It is kind of ambitious to set a numerical target for the whole world, well the G20 world,” said Mario Draghi, ECB governor. However, he welcomed the broad thrust of the G20 to target economic growth.

Leaders from G20 countries are expected to outline what reforms they expect to implement to achieve the growth target when they meet in November in Australia, which is chairing the G20 this year.

Ministers said they welcomed the recent signs of improvement in the global economy. But they warned in the communiqué there was no room for complacency as the world economy still faced weakness in some areas of demand and volatility in financial markets and high levels of debt while global imbalances highlighted that important challenges remained.

The meeting in Sydney marked the debut of Janet Yellen, the chairwoman of the US Federal Reserve, at the G20. Sources said she faced criticism from India, among others, over the destabilising impact that the Fed’s decision to taper its quantitative easing programme is having on some developing countries.

The final G20 communiqué reiterated the need for maintaining communication between central banks and for them to be “mindful of impacts on the global economy” when setting monetary policy.

Copyright The Financial Times Limited 2014.