Achieving a faster and more balanced growth remains a major challenge for the global economy which continues to underperform.
Finance leaders now gathering in Cairns, Australia, face mounting pressure to take steps to bolster growth as the global economic outlook dims.
Group of 20 (G20) economies is expected to announce plans at the meeting of finance ministers and central bankers on ways to boost gross domestic product by 2% over a five year period, a commitment that the group may reiterate in Cairns.
G-20 delegates see the global growth outlook as less positive than early this year, reports indicate. The global economic recovery has faltered since a February G-20 meeting in Sydney, with Europe showing signs of slipping into deflation, Japan’s revival blunted by a sales tax increase in April and China’s 7.5% growth target for 2014 becoming harder to attain.
Another major emerging economy- India too is struggling although the country’s policymakers say it will rebound to over 7% within three years. In the last financial year, the country’s economy grew only by 4.7% and 5.7% in the first quarter of the current financial year.
But most economists argue that Emerging Market Economies (EMEs) such as China and India will have to gear up structural reforms if they are to weather uncertainties and volatilities in the global market space.
This becomes all the more vital when the US exits from its planned Quantitative Easing (QE) programme, which will cause an overhang on asset prices in the emerging markets, and therefore, volatility in the currency markets.
At the G-20 meeting, some officials including US Treasury Secretary Jacob J Lew are pressing members to consider more immediate measures to boost demand.
“Overall, the global economy continues to underperform. This is particularly true in the euro area and Japan,” Lew said in prepared remarks in Cairns.
However, the business sentiment within Lew’s own country is anything but upbeat. A recent US survey revealed that America’s business leaders continued to see an economy’s that failing to live up to its potential, undermined by the failure of Washington to act on major issues to boost economic growth – such as tax reform, immigration and trade — as well as violent conflicts around the world.
Accordingly, Business Roundtable’s just-released Third Quarter CEO Economic Outlook Survey reports lowered expectations for capital investment and hiring over the next six months. The country’s GDP for 2014 is projected to grow 2.4%, about the same as last quarter’s estimate of 2.3%.
The Organisation for Economic Co-operation and Development (OECD) this week trimmed its growth forecasts for the biggest developed economies.
Euro-area GDP is expected to expand 0.8% this year, down from 1.2% forecast in May, while the US will expand 2.1% instead of 2.6%, the Paris-based organisation said.
Growth in the G-20 slipped in the second quarter to 3.2% from a year earlier, down from 3.4% in the first quarter.
Clearly, more work is needed to achieve a faster and more balanced growth, to lift global demand and promote employment. Part of this growth agenda is a focus on investment and infrastructure, which are clearly the engines of global economic growth.
