The stewards of the world’s largest economies have agreed to an ambitious plan that aims to boost global output in the Group of 20 countries by an additional $2-trillion (U.S.) over the course of the next five years, an unprecedented agreement that Canada played a key role in brokering.
Finance ministers and central bankers that together control around 85 per cent of the world economy vowed at the economic conference in Sydney to implement concrete policies and structural reforms in their own countries that would grow global gross domestic product by an additional 2 per cent on average. It’s a soft target that would come in increments of 0.4 per cent a year above current trajectories; if achieved, it could generate tens of millions of extra jobs.
Finance Minister Jim Flaherty told a news conference on Sunday that Canada would outperform even those growth targets in the future.
“Canada played a key role as the co-chair of the working group on sustainable growth, and this was one of our recommendations,” Mr. Flaherty said. “I’m quite confident that Canada will overperform in terms of the average of 2 per cent.”
An International Monetary Fund report released shortly before the summit started laid the foundation for the 2-per-cent growth target and outlined numerous structural reforms necessary to achieve it. The IMF said China should stick to implementing its ambitious economic reform plan, pushed for advanced economies such as Germany to boost investment through tax and financial system reform, and stressed that Brazil and India needed to eliminate infrastructure and regulatory bottlenecks in order to continue powering the world economy.
The G20 communiqué underscores the sluggish nature of the current global economy, which has recovered from the depths of the financial crisis but remains fragile and vulnerable to shocks, such as the turmoil that recently devastated emerging market currencies as the U.S. Federal Reserve Board began paring back its bond-buying stimulus.
Mr. Flaherty and Bank of Canada Governor Stephen Poloz both said they were heartened by the economic recovery in the U.S., but Mr. Poloz stressed that the recession’s scars are still visible and that volatility would remain in emerging markets that haven’t implemented key structural reforms.
“We remain concerned about the damage that has been wrought by that cycle and are only seeing slightly encouraging signs of a rebuilding,” Mr. Poloz said in an interview on Saturday.
The conference also revealed the limitations of a group that observers point out no longer has the unifying effect of the global financial crisis behind it – a gathering that has expanded greatly to include developing-country behemoths in a way that better reflects the true makeup of the modern, global economy but with wide gaps between members’ common interests. India’s central bank chief has previously complained about the devastating effect of the Fed’s tapering, and there were suggestions early in the summit that there were extensive conversations on central bank information-sharing. But items high on the agenda for developing nations – such as securing better knowledge of looming monetary measures and gaining traction for reforms from 2010 that would give poorer countries a greater say at the International Monetary Fund – received only vague, non-binding assurances.
Still, Mr. Flaherty said developing nations “did not feel put upon” by the results of the meeting.
“Some of the emerging economies have been relatively hard hit by currency trends, and they voiced that concern,” Mr. Flaherty said. “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.”
The communiqué did note that the G20 member states “deeply regret” that the 2010 reforms remain unimplemented and urged the United States, where the reforms are stalled in Congress, to act. But as with much else at multilateral gatherings, the heavy lifting will come down to political will within political borders.
“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. “We need an institution that is representative of the evolution of the economy, which requires that the 2010 reforms be actually delivered on.”
Yves Tiberghien, a University of British Columbia professor who studies the G20, said the results of the summit are “very limited” and that the only words that were not “bland and general” were in the communiqué’s language putting pressure on the U.S. to ratify IMF reforms in Congress.
“All in all, this is a meek interim summit that keeps the process going, but does not reveal new ideas,” Prof. Tiberghien said.
There was a good deal of optimism about the strengthening U.S. economy and on China, where economic activity is slowing but GDP growth is still on track for more than 7 per cent this year. There was also broad agreement across areas such as international tax reform to clamp down on tax-base erosion and tax evasion. But there was a strong sense, particularly from Australian Treasurer Joe Hockey, that governments have worn out their monetary and fiscal firepower combatting the recession and now have to do more to enable businesses to create jobs and invest in infrastructure.
“There is no room for complacency,” Mr. Hockey told a packed crowd as the conference ended.