DARK CLOUDS ON THE HORIZON
Most Canadians paid little, if any attention to the meeting of G-20 Finance Ministers in Cairns, Australia over a week ago. Too bad, because the communiqué that they issued at the end of their meeting showed that they are very concerned about the prospects for the global economy. It will be interesting to see how the up coming meeting of the G-20 Leaders respond to their Finance Ministers report.
Everyone should pay attention. Prospects for the next decade and beyond don’t look very good. This is an important meeting, just as important as the G-20 Washington meeting in November 2008, prior to the “great recession”.
The first paragraph in their communiqué sums up their view on the global economy:
“ Growth in the global economy is uneven and remains below the pace required to adequately generate much needed jobs. Downside risks persist, including in financial markets and from geopolitical tensions. The global economy still faces persistent weaknesses in demand, and supply side constraints hamper growth. We need strong, sustainable and balanced growth and robust financial sectors to safeguard our economies from these risks and put people into jobs. We are united and determined in our response to these challenges.”
The G-20 Finance Ministers emphasized the need “ to develop new measures that aim to lift our collective GDP by more than 2 per cent by 2018 above the trajectory implied by policies in place at the time of the St Petersburg Summit in 2013”. We won’t know until the G-20 Leaders meet who will actually participate and how they will participate?
In other words after almost six years the global economy has not only not recovered from the so-called great recession it appears to be entering a potentially long period of stagnating growth.
It is worth comparing the concerns of the G-20 today with to those expressed at the G-20 Leaders meeting in Washington in November 2008:
“We pledge today to sustain our strong policy response until a durable recovery is secured. We will act to ensure that when growth returns, jobs do too. We will avoid any premature withdrawal of stimulus.
At the same time, we will prepare our exit strategies and, when the time is right, withdraw our extraordinary policy support in a cooperative and coordinated way, maintaining our commitment to fiscal responsibility.”
The G-20 response in 2008 was a commitment to undertake stimulus amounting to 1.4 per cent of GDP; the IMF had recommended 2.0 per cent of GDP. The stimulus was to be implemented in 2009 and 2010 and could take the form of either increased government spending and/or tax cuts. All members of the G-20 committed to undertake stimulus measures. In 2010, the U.S. accounted for 60% of the stimulus, China 15%, and Germany 11 %.
The response by the G-20 to the imminent recession 2008 and the proposed response by the G-20 in 2014 to the prospect of stagnating global economic growth are remarkably similar. When the global economy gets into serious difficulty time to resurrect John Maynard Keynes from his grave.
The alternative Neo- Liberal approach, which is that government intervention will only make thing worse is silently put back in “cupboard”, to be brought out later once the situation has improved.
For example, the conversion to Keynes in 2008 lasted all of 24 months. By the time of the G-20 leaders summit in November 2010 most countries had returned to their neo Liberal ways.
The November 2010 communiqué emphasized the need “to create the conditions for robust private demand… the importance of sustainable public finances and the need for our countries to put in place credible, properly phased and growth-friendly plans to deliver fiscal sustainability”.
We all know what this advice resulted in. Under the burden of the financial collapse and the imposition of severe austerity on certain EURO countries the EURO area has never recovered and is not expected to in the near term. The Chinese economy is no longer the global juggernaut and other BRIC countries are also suffering.
The irony is that the only G-20 economy that is growing today is the U.S. It is the one advanced G-20 country that argued in 2010 that rapid reduction in the stimulus would jeopardize the global recovery. It is double irony that Canada who led the charge along with Germany in the resurgence of fiscal austerity is now depending entirely on the recovery in the U.S. The Neo Liberal experiment in Canada has been a dismal failure.
It appears today, however, that Minister of Finance Joe Oliver, does not share the view that was frequently expressed by him predecessor, Jim Flaherty. Mr. Flaherty never missed an opportunity to hector his G-colleagues to impose austerity and eliminate their deficits quickly. Mr. Flaherty liked to “flog” the Canadian approach, notwithstanding that this approach was contributing to years of slow growth and job creation.
Mr. Oliver, on the other hand, is taking a softer and less stringent approach to deficit elimination and growth.