The world’s largest economies, including Canada, have agreed to a soft target of boosting global economic growth by 2 per cent over the next five years at the Group of 20 summit in Australia amid concerns about a sluggish world economy and high unemployment.
In a final communiqué released Sunday afternoon in Sydney, which contained significant input from the Canadian delegation, the world’s top finance ministers and central bankers agreed to push measures in their own countries that could result in as much as $2-trillion (U.S.) in additional, aggregate output above current trajectories over the next five years throughout the G20.
Canadian Finance Minister Jim Flaherty, who attended the meeting with Bank of Canada Governor Stephen Poloz and others, said Canada is set to outperform that target with even greater growth in the future.
“Canada will do better than that over the next five years,” Mr. Flaherty said in response to a question from The Globe and Mail. “The fundamentals are correct. There is lots of room for growth. We have relatively low taxation… I’m quite confident that Canada will over-perform in terms of the average of 2 per cent.”
And despite the fact that developing nations did not win many concrete gains in discussions over the weekend, Mr. Flaherty said he did not think emerging economies were angered by this – and, indeed, that Canada felt some of their pain in terms of taking a recent hit to its currency.
Canada co-chaired the main G20 working group behind the growth targets with India, and Mr. Flaherty said the growth targets – which imply an incremental boost of 0.4 per cent per year as a result of structural reforms – were one of the Canadians’ main recommendations. Canadian delegates came in for praise by the host country, Australia, for their efforts, and Mr. Flaherty said his own efforts to tame his government’s deficit was encouraging to other officials.
“It’s not impossible for countries that are in deficit to get themselves healthy, fiscally, again,” Mr. Flaherty said. “Our budget will be balanced next year. It’s almost balanced… It encourages them to see an example of fiscal responsibility.”
At a separate news conference, G20 host and Australian Treasurer Joe Hockey said that despite improving economic situations in the United States, Japan and elsewhere, G20 members still had serious concerns about the pace of global growth – and that this prompted action.
“There is no room for complacency,” Mr. Hockey said in Sydney as he launched the communiqué. “Addressing these challenges requires ambition. We commit to developing new measures, in the context of maintaining fiscal sustainability and financial sector stability, to significantly raise global growth.”
As expected, the G20 member countries did not agree to any hard growth targets – something G20 host Australia pushed for, but which Germany resisted – that would see individual countries pledge to meeting specific benchmarks within their own borders.
The goal, instead, is for the 2 per cent target to act as an impetus for member countries to frame domestic policies and actions that will encourage growth, create jobs and lead to investments in infrastructure. The figures are based on an International Monetary Fund report released before the G20 meeting and were agreed upon after consulting with the OECD, or Organization for Economic Co-Operation and Development, which represents the world’s largest advanced economies.
The weekend gathering of officials, however, was less successful on the issue of greater international monetary cooperation, a key issue for emerging market countries that have been battered by capital outflows following the drawdown of the U.S. Federal Reserve’s bond-buying stimulus – which U.S. Fed chair Janet Yellen had previously pledged to continue. India’s central banker, in particular, had been vocal about securing greater warning of monetary actions that could harm certain developing countries.
But the final release, which follows days of public ruminations about the impact of the Fed’s tapering on emerging markets, features only lukewarm goals of continuing to clearly communicate monetary policy, as well as central banks being mindful of the negative impacts their polices can have on other countries.
Developing nations also lost out in terms of an ambitious, determined push for International Monetary Fund quota reforms that are necessary to give poorer nations a greater say in the international institution but which have not been ratified by a divided U.S. Congress.
“We need reliable long-term resources in order to face potential risks and potential crises, and there will be such crises in the future,” IMF managing director Christine Lagarde said at a closing session of the summit. “Second, we need an institution that is representative of the evolution of the economy, which requires that the 2010 reforms be actually delivered on.”
The communiqué notes that G20 countries deeply regret the lack of IMF reform and gently urged the U.S. to approve the changes before the next G20 meeting in April. It appears as if some agreement was made on both IMF reform and monetary policy cooperation, but in both areas the progress made was far short of what developing countries had been hoping for throughout the process.
Mr. Flaherty said he felt emerging markets’ pain in terms of currencies taking a hit – a clear reference to the sharp declines many emerging currencies faced over the summer of 2013 – but noted that he did not think delegates from developing countries were dismayed by developments.
“I don’t think they felt put upon,” Mr. Flaherty said. “Some of the emerging economies have been relatively hard hit by currency trends, and they voiced that concern. And I understand it. I look at our own currency, and I see the bit of a hit we’ve taken with the Canadian dollar – it’s both positive and otherwise, given exports and manufacturing. But it matters a lot to the emerging economies.”
From the beginning of the summit, Mr. Hockey had reiterated comments that, in the wake of the global recession, governments around the world had largely run out of monetary and fiscal firepower to boost growth. The aim from the beginning of the conference, he said, was to hash out ways in which governments can encourage economic growth by freeing up the private sector to create jobs and invest in much needed infrastructure.
Although there was also a lot of discussion about the impact of the Fed’s actions among bankers and finance ministers, there were also comments – including from Mr. Poloz – that certain emerging market countries had faced volatility from the taper because not enough had been done to implement structural reforms domestically.