Canada's Finance Minister Joe Oliver talks during an interview at the G20 Finance Ministers and Central Bank Governors Meeting in the northern Australian city of Cairns Sept. 20.STAFF/Reuters
Finance officials and central bankers from the world's leading economies are huddling in Washington this week amid warnings the global economy may be headed for a "new mediocre," marked by strong growth in the United States and weakness virtually everywhere else.
The increasingly uneven economic picture is one of the new worries facing policy makers, gathering for meetings of the International Monetary Fund, the World Bank and the Group of 20.
IMF managing director Christine Lagarde wants countries to commit to bold policies to avoid a prolonged period of sluggish global growth.
"The global economy is at an inflection point: it can muddle along with sub-par growth – a new mediocre," she said in her prepared remarks. "Or it can aim for a better path where bold policies would accelerate growth, increase employment, and achieve a new momentum."
Canadian Finance Minister Joe Oliver, who will attend the meetings along with Bank of Canada Governor Stephen Poloz, has been urging European countries to spend more as a way to kick-start their stalled economies. He's also pushing tax cuts and free trade deals as economic engines.
Australia, which is due to host a G20 leaders meeting in November, has been promoting partnerships with the private sector as a way to spur infrastructure projects and drive job creation. Australian Treasurer Joe Hockey is hoping to get member countries to agree this week to create a Global Infrastructure Centre, to share information on how to attract funds.
It's not at all clear where countries will get the money to spend, given that most are weighed down by large budget deficits run up during the financial crisis.
Most countries are already pretty tapped out in terms of what they can do – both on the spending side, due to high debt levels, and on the monetary side, because central bank interest rates are already at ultra-low levels in most countries, Bank of Montreal chief economist Douglas Porter said.
But CIBC World Markets economist Avery Shenfeld notes lower bond yields in many European countries are lower than a year ago, and that's giving them the ability to borrow more. "There is certainly lots of room for Germany to borrow and spend, and its economy is not doing particularly well either," he said.
The IMF is expected to downgrade its outlook for the global economy when it releases its latest forecast Tuesday. In July, the IMF said growth would accelerate to 4 per cent next year after expanding at a rate of 3.4 per cent this year.
There was more evidence Friday that the U.S. is becoming an economic outlier. The country added 248,000 jobs in September and the jobless rate fell below 6 per cent for the first time in six years.
Mr. Shenfeld cautioned that the U.S. can't easily go it alone as the driver for the rest of the world, particularly if the recent upward move in the U.S. dollar starts to harm exports.
Canada, however, can endure some weakness in Europe and Asia, as long as the U.S. continues to pick up steam, according to BMO's Mr. Porter.
"North America can sail through choppy weather on its own," he said. "The question of whether the U.S. can carry the whole world on its shoulders, that one is much more up for debate."