Share

Bleak picture facing global finance officials

Washington — Though braced by a resurgent United States, the global economy is under threat from other regions — from Europe and Latin America to China and Japan — where growth is stalling and prospects remain dim.

That's the bleak picture facing global finance officials who are meeting this week in Washington to consider policies to address the world's uneven growth. Their meetings follow downbeat assessments of the global economy issued this week by the International Monetary Fund, the Brookings Institution and the Federal Reserve.

The talks are beginning on Thursday with finance ministers and central bank presidents of the Group of 20 nations, which includes traditional powers such as the United States, Japan and Germany and emerging economies such as Russia, China and India. Next will come meetings of the 188-nation International Monetary Fund and its sister lending organization, the World Bank.

In a global forecast prepared for the meetings, the IMF downgraded its outlook this year because Europe is at risk of slipping back into recession and persistent weakness is slowing Japan, China and Brazil. The IMF called the recovery uneven and said global growth this year would be 3.3%, one-tenth of a percentage point below its forecast in July. And it lowered its outlook for 2015.

Brookings' report spoke of the United States as "the sole major economy still showing signs of strength."

"The world still seems to be counting on riding the coattails of the US economy," said Eswar Prasad, a Cornell University economist who was among the authors of the report. "That is not going to produce a sustainable recovery."

Fed officials took note of the weakness in overseas economies and the strengthening dollar at their September meeting, according to minutes released Wednesday. The minutes indicated that officials worried that sluggish economies in Europe, Japan and China could depress US exports.

Concerns about Germany's economy — Europe's largest — have been mounting. The most recent figures show that industrial production, exports, factory orders and business confidence have all endured sharp declines.

Collectively, the figures raised the risk that Germany could slide into recession. The country is suffering from weak demand for its goods from the rest of Europe and China and from fears about the effect of sanctions imposed on Russia over the crisis in Ukraine.

Four leading think tanks in Germany have slashed their economic growth forecasts to 1.3% for this year and 1.2% for 2015, down from predictions in April of 1.9 percent and 2 percent, respectively.

Last week, IMF managing director Christine Lagarde warned that bold action was needed to inject into the global economy "a new momentum that can overcome this new mediocre that clouds the future." She called for reforms of labor markets and more spending on infrastructure.

Treasury secretary Jacob Lew and Fed chair Janet Yellen will represent the United States at the discussions, which begin with a working dinner Thursday night. US officials said they planned to urge other economies to step up efforts to boost growth and strengthen bank regulations to prevent a recurrence of the 2008 financial crisis.

Without naming countries, Lew said that while the Obama administration had taken decisive steps to combat the Great Recession, other countries haven't been as bold and must do more.

"I don't think the United States alone can pull the global economy to where it needs to be," Lew told a forum sponsored by the Peterson Institute for International Economics.

The lopsided shape of the global economy has begun to have consequences. The US dollar has strengthened against major currencies, including the euro and the Japanese yen. That trend should help keep US inflation low. But it will help give European and Japanese manufacturers an edge over their US competitors: European and Japanese goods will become more affordable in the United States, while US products will become costlier in Europe and Japan.

The G-20 discussions will end Friday with a joint statement and individual news conferences. Officials have set a goal of boosting global growth by 2% within five years, a target that would add $5 trillion to the global economy.

Joe Hockey, the treasurer of Australia, which is chairing the G-20 meetings, said the target was "ambitious but deliverable." He said the IMF estimates that steps already proposed by individual nations could increase global growth by 1.8%. But he conceded that winning funding from lawmakers in each country would be difficult.

"Governments have run out of money," Hockey said.

Analysts warn that structural economic changes typically require taking on political interests.

"The easy steps in the form of monetary policy that has produced low interest rates have already been taken," said Sung Won Sohn, an economics professor at the Martin Smith School of Business at California State University. "The tougher steps, such as deregulation and labor market reforms, represent hard political choices that have to be made."

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.97
-0.2%
Rand - Pound
24.09
+0.1%
Rand - Euro
20.61
-0.1%
Rand - Aus dollar
12.37
+0.4%
Rand - Yen
0.13
+0.6%
Platinum
906.50
-1.8%
Palladium
1,010.52
+0.4%
Gold
2,155.30
-0.2%
Silver
24.97
-0.3%
Brent Crude
86.89
+1.8%
Top 40
66,018
-0.4%
All Share
72,192
-0.3%
Resource 10
53,225
-0.2%
Industrial 25
99,730
-0.7%
Financial 15
16,631
+0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders