Where Are the Emperor's Clothes?
Thomas A. Bernes
This post was originally published on the CIGI Online.
At their 2014 summit in Brisbane, Australia, G20 leaders adopted the Brisbane Action Plan, which was intended to raise potential world growth by two percent over the subsequent five years. Australia’s G20 presidency worked mightily for this result, recognizing that the credibility of the G20 to deliver was being questioned by many who saw the G20 increasingly as little more than a talk shop.
This action plan, we were told, would raise world output by an additional US$2 trillion over what would otherwise be expected, and create tens of millions of new jobs. Some 1,100 measures were put forth by the G20 member governments — ostensibly new policy measures that would be in addition to policy measures previously announced by governments. The International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) reviewed the proposed measures and announced that they could succeed in raising global growth potential by 2.1 percent “if fully implemented” (G20 Leaders 2014, para. 3).
So, where are we today as we approach the 2015 G20 summit to be held in Antalya, Turkey? We know that within a few short weeks of the Brisbane agreement, both the IMF and the OECD marked down their global growth forecasts. This continued the trend of recent years of overly optimistic forecasts followed by downward revisions to reflect actual outcomes.
This downward revision also suggests that these institutions did not have a great deal of confidence that the actions proposed by governments would be successfully implemented.
The list of specific measures was released as the leaders were departing Brisbane, and therefore they could not be questioned on the measures. We now know that many of the measures did not, in fact, reflect “new” policy measures. Others were simply highly unlikely to be successfully implemented. One commitment made by the United States was immigration reform. Although it is certainly important, no one is holding their breath (or betting their economic future) on credible US immigration reform in the near future. Even the Australian host government has walked away from a number of its commitments as it lacked political support in its Parliament.
G20 finance ministers have met three times since Brisbane and made pronouncements on the global economy. Each time, they have noted that growth has been slower than anticipated, but reaffirmed their commitment to take the necessary actions “to keep the recovery on track” (G20 Finance Ministers and Central Bank Governors 2015). The problem, however, is that the recovery is not on track. Global growth is now projected to be less over the next five years than the earlier projections without the Brisbane Action Plan. The World Trade Organization has released a report noting that global trade growth is running at about half of what it was prior to the 2008 global financial crisis. Growth in the United States and some other countries (for example, Germany, France, Japan and Canada) is weak. Other countries (particularly those in the euro zone) have failed to reach the production levels of 2008. Unemployment remains a huge problem in Europe, where a whole generation is being lost.
The IMF and the OECD were tasked with reporting to the Turkish summit on the progress in implementing the Brisbane Action Plan. We know already that it will be insufficient. How will G20 leaders respond? Platitudes and exhortations to redouble efforts will simply not be credible.
But the global economy and global growth is the central issue confronting the G20. Some commentators have suggested that the situation is as dire as that confronting the world at the outbreak of the 2008 global financial crisis and calls for an equally strong and energetic response by political leaders. Even Managing Director of the IMF Christine Lagarde (2015) has called for a “policy upgrade” by major economies.
While emerging markets, and notably China, have provided support to global growth since 2009, this is slowing. In China, this is appropriate and consistent with its reform agenda, but many other emerging economies have failed to make use of good years and now face slower growth and heightened risks. Japan is still mired in escaping deflation and Europe faces enormous financial, fiscal and political challenges.
These economic challenges do not even take into account the broader challenges brought about by climate change, the challenges of sustainable development, the refugee crisis and current geopolitical hot spots.
The central question for the Antalya summit is whether G20 leaders and the institutions that support them can articulate a “policy upgrade” that brings more credibility than last year’s Brisbane Action Plan.
Thomas A. Bernes is a CIGI Distinguished Fellow. He has held high-level positions at the International Monetary Fund, the World Bank and the Government of Canada.