Tail risks for the global economy have receded vis-à-vis last year, but this has not translated into higher growth in many advanced economies. Emerging economies, which have made considerable contributions to global economic growth since the height of the international financial crisis, are slowing down. In its latest round of forecasts in July, the International Monetary Fund (IMF) downgraded its growth projections, especially those for the emerging economies, and the Washington-based institution may provide G20 leaders with a new set of downward-revised projections in St. Petersburg in September.
The forthcoming G20 summit in Russia may, unlike previous G20 summits, be an event with no immediate, significant deliverables. While prospects for global growth may have slightly deteriorated, there are no immediate signs of a re-escalation of the euro-area crisis that took centre stage at the Cannes summit in 2011 and, at Los Cabos the following year, prompted several IMF member countries to pledge a total of almost half a trillion US dollars in an effort to boost the institution’s firepower.
Nor can we expect any substantive, meaningful progress on the reform of the IMF, which featured prominently in many of the previous summits. The failure of the United States to ratify so far the reform package that G20 leaders endorsed at the Seoul meeting in 2010 prevents any meaningful discussion on next steps, for example, by facilitating agreement on the fifteenth quota review originally set to be completed by January 2014.
With little international momentum behind this Russian summit, two forces will likely shape the final outcomes of the leaders’ gathering. First, there will be a tendency to dilute the agenda by broadening the spectrum of issues that leaders will discuss — or at least claiming to do so in their final communiqué — to include topics such as international trade, sustainable development, the fight on tax evasion and excessive currency movements.
Second, there will be an attempt to shift the discussion towards medium-term deliverables. On fiscal policies, for instance, leaders will hammer out some compromise outlining the need for relatively flexible policies in the short term while being cognizant of a medium-term oriented fiscal consolidation.
Over the course of the recent ministerial meetings held under the Russian chair, the gap between opposing positions — epitomized by the United States on the accommodative front and by Germany on the rigorist front — has narrowed, given the latest string of disappointing macroeconomic data on the euro-zone economies. It is likely that leaders will commit towards achieving lower levels of public debt in proportion to GDP over the medium term consistently with their country-based economic strategies, while omitting any reference to predetermined common targets.
Having exhausted the conversation on fiscal policies, G20 leaders will switch to structural policies, in particular, labour and product market reforms, as key drivers for growth and jobs in the medium term. Again, there will not be any specific commitments agreed to by the leaders, as follow-up measures will be embedded in country-specific strategies. Leaders will, however, show their collective resolve in supporting such reforms as a way to increase potential growth and employment over the longer term.
While wrapping up in St. Petersburg, participants will already have their eyes on the next G20 summit, in Australia, wondering whether the BRICs and other emerging economies may top the agenda of the gathering in Brisbane in 2014.