In the seven years since it was elevated to the level of supposed guardian of global stability, the G20 grouping of large economies has struggled to make a noticeable impact.
In general, though they have paid lip service to global co-operation over macroeconomic policy, none of its members has been overly bothered about ignoring the views of the rest of the group. Each has generally gone its own way on fiscal, monetary and exchange rate policies.
But at Friday’s meeting of G20 finance ministers in Shanghai, the stakes for failing to co-ordinate policy across the world are higher than for some time. With recent financial market turmoil and great uncertainty about Chinese economic prospects, a sense of unease has persisted since the turn of the year.
Although the global economy has continued to expand, the need for a general effort to prepare monetary and fiscal stimulus has become more pressing. And while it may be too much to hope that the G20 countries will finally all move together, they should at least satisfy themselves that their policies are consistent with the greater good.
The International Monetary Fund and the Organisation for Economic Co-operation and Development have both warned that growth appears to have slowed late last year and early this, even before the recent turmoil in equity markets worldwide. The OECD says global growth is likely to be around the same in 2016 as in 2015, itself the weakest for five years.
Moreover, with the advanced economies continuing to tighten fiscal policy and hence subtract from demand, only China of the big countries is running a public deficit.
This is not the moment to take global expansion for granted and to focus on fiscal consolidation. Monetary policymakers — with the large and regrettable exception of the US Federal Reserve — have been trying to loosen policy, with both quantitative easing and negative interest rates.
Their efforts would have more impact if they were financing a fiscal expansion rather than acting alone. As many observers have pointed out, economies with anaemic private demand and low long-term interest rates are ideally placed to undertake publicly financed investment in the hope of boosting short-term growth and medium-term productivity.
The risk of monetary expansion without a fiscal counterpart is that it can lead to international tension, even if the motives of the central banks involved are honourable. Quantitative easing in both the eurozone and Japan was primarily aimed at loosening domestic monetary conditions but also, at least initially, pushed down their exchange rates. With the renminbi under downward pressure, another conflict could emerge over alleged competitive devaluations.
Such concerns are only amplified by doubt over how much control the People’s Bank of China, as opposed to other agencies and the Chinese Communist party, truly has over monetary policy.
At the very least, even if they cannot all move together, policymakers need to understand each other’s intent. Looser monetary policy — and fiscal stimulus even more so — need not be a zero-sum game if it generates higher growth and more trade rather than simply taking a larger share of global demand through a weaker currency.
The G20 is unlikely to emerge from this week’s meetings with a unified action plan. But its members should be aware that the moment when they are forced to move to bolster sagging growth has come noticeably closer over the past few months.
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