Global GDP growth after the G20 summit
February 23, 2014 4:21 pm
by Gavyn Davies
Others, like the ECB and the German Finance Minister, were much more sceptical, and in fact no new measures have yet been adopted to help attain the growth targets. The real test will come at the Brisbane G20 Summit in November, when concrete measures are intended to be unveiled.
Policymakers may pay lip service to the need for reforms, but in practice they seem increasingly satisfied with the rather weak economic recovery which is now underway in the developed economies. The good news is that the underlying recovery in GDP does not seem to have been significantly dented, despite the slowdown in the manufacturing sector, in recent months.
G20 Policy Initiatives
At Sydney, the G20 has done little more than to adopt the broad principles outlined in an IMF paper prepared last week for the Summit. This paper predicts that, on unchanged policies, real GDP in the G20 will grow by 3.8-3.9 per cent in both 2014 and 2015, substantially better than the 3.2-3.3 per cent achieved in the last two years.
This path for output would still leave G20 output remaining at about 8 per cent below its long term trend for several more years, thus failing to eliminate any of the the output losses experienced during the Great Recession after the 2008 crash. Any recovery in the developed world is expected to be more than offset by a large drop in Chinese output below previous trends.
In order to catch up these losses, the IMF proposes a series of policy initiatives which have a familiar ring to them: gradual fiscal consolidation; no “premature” tightening in G7 monetary policy, with some further easing by the ECB; supply side reforms, with more competitive product markets, and higher labour force participation; higher domestic demand in the surplus economies, Germany and China; tighter monetary policy and more exchange rate flexibility in the troubled emerging markets; and a boost to infrastructure spending worth 0.5 per cent of GDP in several economies.
Overall, this seems to be a “more of the same” package, rather than anything more dramatic. It stems from the IMF’s belief that, while a shortage of demand in the developed economies is still the main constraint on growth, supply potential has also been substantially damaged by the weakness of investment and the labour force. This increased IMF concern about permanent erosion of potential output mirrors the recent shift towards supply side pessimism by the central banks. Hence the caution about the speed of the recovery.
What are the chances that the IMF package will actually be implemented by the G20 in coming years? Some parts of the package simply represent policies that are already seen to make sense from the point of view of individual countries (e.g. the recommended fiscal/monetary mix in the US). These may well be implemented.
Others represent changes that are not yet accepted by the policy-makers concerned, notably the shift to greater monetary expansion by the ECB, and they may only happen under duress. Still others, in the area of supply side reform, have always proven hard to implement, except in a crisis environment.
Finally, there are some recommendations mainly designed to produce desirable spill-over effects for the world as a whole, such as the boosts to domestic demand in Germany and China. These recommendations have been on the table for well over a decade, and are the least likely to be implemented.
Unfortunately, therefore, it would not be wise to bet on the IMF reform package actually coming into effect. Mario Draghi said this month that the real test of “policy co-ordination” is whether countries adopt policies that would not be adopted if they were acting solely in their own domestic interests. Based on this test, the achievements of the G20 in recent summits seem very limited, and will probably remain so.
Recent Activity Data
In the absence of a major policy initiative, what are the chances that global GDP growth can achieve “escape velocity” this year? This seemed to be happening in the developed countries, led by the US, in the second half of last year, but in recent months there has been a marked slowdown in manufacturing output and retail sales volume.
The IMF has emphasised that the global recovery is subject to serious downside risks from financial shocks in the emerging markets, the deflation threat in the euro area, and the credit crunch in China. And Bruce Kasman of J.P. Morgan said this week:
There is a downshift underway in global activity that is sharp, broad-based, and reflects more than inclement US weather… Activity readings should fall below their underlying trend this quarter and are likely to produce downward revisions to current-quarter GDP estimates.
However, in line with most other forecasters, Kasman argues that this recent downturn seems to be reflecting a return to more normal behaviour in the goods sectors of the developed economies after a temporary and unsustainable surge late in 2013. Lower inventories, as well as bad weather, have come together in 2014 Q1, and their effects should dissipate as the year progresses.
This relatively optimistic assessment is supported by our latest “nowcasts” for global activity, shown in the graph before and in the table below. These nowcasts estimate the underlying rate of growth in global activity (excluding the emerging markets) on a monthly basis, summarising the information contained in all of the significant economic data released in the relevant period.
The published GDP numbers for 2014 Q1 may be revised down because of weather and other temporary effects. But the nowcasts suggest, somewhat surprisingly, that there has been no decline in the underlying G8 growth rate in January or February, compared with the rates of 3.0-3.5 per cent seen in the rebound in activity last year. US and UK activity growth remains above 4 per cent, while Japan is above 3 per cent, and the euro area has rebounded to just under 2 per cent.
If these underlying growth rates can be sustained for the rest of the year, they would be enough to attain the IMF’s forecasts for global growth this year, even without any further policy action from the G20. The pace of recovery may be rather unsatisfactory, but at least it is not weakening further.
0 comments:
Publicar un comentario