Why aren't the leaders smiling?

The leaders of the world's twenty largest economies, known collectively as the G20 Group, last week finished their two-day summit in Hangzhou, China. G20 members include Argentina, Australia, Brazil, Canada, China, France, Germany, Italy, India, Indonesia, Japan, Mexico, Republic of Korea, Russia, Saudi Arabia, South Africa, Turkey, UK, USA, and the EU. While the host nation, China, issued tons of communiqués each day on September 4 and 5 while the conclave was in progress, the joint declaration at the end of it while long was devoid of any substance, particularly on how the mighty powers would boost the sluggish world economy, or even give it a gentle push. For economies of Bangladesh and other developing countries which are at the mercy of its trading partners and the recent rounds of uncertainty in the financial and foreign exchange sectors, as well as in the prospects of globalisation and trade regimes means another few months of nail-biting journey through choppy waters, the G20 summit was a non-event. We work hard for every penny we make from our exports and pay a premium for our imports (except for oil in recent months), the least the G20 leaders could have done was to be specific about how they plan to increase trade, investment, and economic growth. 

This is the eleventh G20 summit and comes at a time when we have witnessed a slowdown in world economic growth and continual uncertainty in global political outlook. China's President Xi Jinping was not shy, though, when he declared, "We aim to revive growth engines of international trade and investment. We will support multilateral trade mechanisms and oppose protectionism to reverse declines in global trade." Xi was referring to recessions in many of the participating countries, and potential headwinds that many G20 economies faced in the wake of Brexit and UK-EU negotiations, global resistance to trade agreements, and political uncertainties in the USA and the Middle East. The Chinese government appeared to be holding out an olive branch to the rest of the world excluded from this parlay by slogans of "the four I's": innovation, invigoration, interconnectedness, and inclusiveness. While these are good intentions, without any concrete measure to transform these words into actions, the rest of the world can only hope. 

In a communiqué issued several hours after the close of the summit, the G20 leaders warned that global growth was weaker than anticipated, with downside risks continuing, and repeated the acknowledgement that monetary policy alone could not create balanced growth. Before the summiteers began to arrive in Hangzhou located in the Zhejiang province, China raised the hope of those who were watching in the sidelines by pointing to Blueprint for Innovative Growth, which announced a "historic consensus on world growth". Hangzhou is the capital of Zhejiang province and embodies China's new economy based on high technology and the hometown of Alibaba's founder Jack Ma.  While Xi had earlier said, "Facing current risks and challenges in the world economy, we will continue to reinforce macro policy communication and coordination," unfortunately in his speeches, the Chinese statements or the final communiqué gave no hints of any concrete steps. On the positive side, the summit also had the global refugee crisis, the fight against the financing of terrorism, financial regulatory reform, and sustainable development on its agenda, but it is not clear how much real attention these issues received.

Now, why do I sound so sceptical? For a start, the global economic outlook continues to be uncertain.  The world economy has been on a roller coaster since previous summer when the Chinese economy set off some major tremors. There has been no respite for the major world economies from weak economic growth, a pushback against globalisation in the form of trade pacts such as TTIP and TPP, and spiralling commodities prices. In an op-ed in the Wall Street Journal, two observers commented "The policies of the G20, the International Monetary Fund and the major central banks aren't working." For world leaders, the challenges they face are low interest rates, sky-rocketing real estate prices, weak exports, sluggish job markers, and increasing income inequality.  The IMF which has now lost a lot of its forecasting credibility because of its penchant for painting "rosy" pictures had originally projected a 3 percent annual growth rate for 2016. However, it did warn G20 leaders ahead of its meeting that the world economy is stalling and lowered its forecast of growth in the largest economies to 2.2 percent. Some G20 countries, including Brazil, South Africa, Russia, China, and India have experienced recession or strong recessionary pulls in the last year.  Even Saudi Arabia has experienced recession in its non-oil sector, and the overall GDP is expected to grow by 1.5 percent year on year in the first three months of 2016. 

The most recent jobs data in the USA paint a gloomy picture of the state of this economy as the country moves into the final phase of the Presidential election campaign. In August, only 151,000 jobs were added to the economy, a sharp downturn from the 270,000 jobs that were added in the previous two months. Since jobs growth did not meet the expectations of the Federal Reserve to raise the key interest rate in its September 20-21 meeting and the Fed will wait until December, i.e., until the political outlook following the elections is clearer. "The US economy puttered along at around 2.4 percent growth in 2015, with falling unemployment but poor job growth, real wage increases, strengthening bank balance sheets and various other signs of economic life." (www.globalpolicywatch.com) Nonetheless, a Harvard economist Larry Summers foresees a good chance of a global recession in the next three years.  

I hate to leave my readers with in a state of "gloom and doom". There are some very positive outcomes that emerged from, or followed the G20 summit. The British economy seems to have bounced back from the Brexit shock, the pound has been rising steadily even in the face of continuing uncertainty on the terms Britain will be able to secure in its exit negotiations.  There was also progress in protecting the environment at the summit. And finally, there is growing optimism that the "emerging economies" are bouncing back and even the Wall Street Journal ran a recent story which advocates that the greatest strength in the world economic engine will come not from the G7 but from the emerging markets.  

The writer is an economist and author of several books on economic policy.