G20 Worries About Growth

The central message from the G20 Summit in Brisbane last weekend was the need for more growth, and there was a clear sense after the meeting that leaders are worried. David Cameron captured the mood with his statement that “red warning lights are flashing on the dashboard of the global economy” and his concern about “a dangerous backdrop of instability and uncertainty.” While Europe came in for the most criticism (Christine Lagarde rightly worries that high debt, low growth and unemployment may yet become “the new normal in Europe”) concerns about growth in Japan and emerging markets also weighed on leaders. In the end, though, the diplomacy conducted on the sidelines was more meaningful than the growth proposals put forward at the summit.

Leaders put forward over 800 policy commitments that they assert will raise global growth by over 2 percent by 2018, but on first look there is little additional here that will actually be implemented. For the United States, for example, the commitments reflect the Administration’s fiscal agenda, including stimulus proposals with no real chance of congressional approval. In Europe, the commitments also reflect fiscal and structural measures that seem highly optimistic and at odds with the current policy paralysis there. Leaders also made sweeping commitments in the areas of trade and infrastructure, with a commitment to information sharing on best practices in infrastructure that makes a lot of sense but is unlikely to move the needle on global growth. Nonetheless, the IMF gave cover to leaders, stating the measures would meet the growth target “if implemented fully,” an assessment that was polite but not a service to the debate. Perhaps the peer pressure embedded in the process (leaders committed to review these policies next year), will produce better policies in the future, but the effort looks a lot like the IMF’s failed mutual assessment process (MAP) and I am not optimistic that it will work better at the leaders’ level.

These summits also give a push to ongoing reform efforts, and the Brisbane iteration was no exception. There was endorsement of an anti-corruption action plan, focusing on improving transparency in financial flows (including importantly going after shell companies offshore). Leaders also called on countries to ensure that information is shared between domestic and international agencies, including law-enforcement bodies. Work on international tax avoidance was endorsed. Measures to end too-big-to-fail were advanced. These are good and important steps, and represent a lot of serious expert work leading up to the summit. The challenge now is to match words with deeds.

From a U.S. perspective, the most important achievements came outside of the G20 meetings: an agreement with India to advance the WTO trade facilitation package agreed in Bali last year, apparent progress on the Trans-Pacific Partnership (TPP), and accords between China and the United States on limits of CO2 emissions and on IT trade. The energy shown on the trade agenda is heartening, but at the same time I worry that any agreement will be a tougher sell with the Congress than many expect. The administration’s request for trade promotion authority will be an early test.

Overall, the G20 Summit and surrounding meetings did as much as could be expected, and perhaps a little more. At times of crisis, the G-20 is extremely effective at finding common cause and working together on crisis solutions. In calmer times, such as the present, agreement is harder to achieve. Despite this trend, let’s hope that the next G20 summit isn’t a crisis meeting.