A feeling of crisis: what do you expect from the meeting of G20 financial


A mandate from the IMF

On Friday in Shanghai will begin a two-day meeting of Finance Ministers and heads of Central banks of the countries “Big twenty”. On the eve of the meeting of the international monetary Fund (IMF) published a special report, which gave recommendations to the heads of financial departments of countries G20.

The IMF stated that the global economy in 2016 has already shown growth worse than expected, primarily due to the reduction in business activity in developed countries. Introduced in January forecasts for global growth in 2016 and 2017 3.4 and 3.6%, respectively, may be revised downwards in April. The Fund believes that the global economic recovery is under threat due to the slowdown of the Chinese economy, falling commodity prices and uncertainty on the financial markets.

“The world economy needs a common effort to contain risks and maintain growth,” the report said. To rely solely on lowering interest rates is not enough. The G20 countries, according to the Foundation, must agree to coordinate their policies to stimulate demand. To achieve this, according to the IMF, should be through increased public spending, investing in infrastructure. This Council, in particular, addressed to Germany — Angela Merkel’s government is pursuing a policy of strict budget discipline and not particularly supportive of the idea of soinvestirovaniya.

Separately, the IMF gave its recommendations to the largest developing economies — China, India, Brazil and Russia. The Fund said that Russia, given the sharp decline in oil revenue should adjust their spending in 2016. The policy of fiscal consolidation and reducing the fiscal deficit in the medium term should continue.

According to the Russian Ministry of Finance data, over the first month of 2016, the budget revenues compared to the same period last year decreased by 18% and expenses by 54%, which allowed us to meet in January, the budget surplus 390,2 billion rubles, However, projected for 2016, the deficit should reach 2.36 trillion rubles (about 3% of GDP). The Minister of Finance Anton Siluanov has already warned that if the oil price around $30 per barrel, the budget could be short 2.5 trillion rubles.

A week ago, with a similar forecast was made by the Organization for economic cooperation and development. The organization also urged the authorities of the leading economies of the world for urgent action to increase public infrastructure investment.

Agenda

Conclusion some crucial agreements during the meeting, “financial twenty” is unlikely — not everyone shares the IMF’s concerns about the fact that recession in the financial markets inevitably has to start slowing down the global economy. In particular, the Secretary of the Treasury Jack Lew on February 24, told Bloomberg that the current state of the real economies is much better than the situation of the financial markets. “There is no crisis. No need to wait for crisis response in situations in which there is no crisis”, said Lew.

Implementation of measures to increase public spending, which the IMF proposes to boost growth in the Eurozone, are likely to meet your opponent in the face of German Finance Minister Wolfgang Schaeuble, one of the main proponents of budget cuts. Despite the fact that the IMF since the summer of 2015 calls on Germany to increase public spending to revive economic growth in the Eurozone, Berlin is looking at such measures with skepticism. “We must not allow ourselves to follow the illusion that we can solve our problems through the use of increasing amount of public funds and ever higher deficits”, — stated in 2014 schäuble.

A balanced budget has become a sort of obsession, notes economic analyst Deutsche Welle Rolf Wenkel. According to published 23 February statistics, the budget surplus of Germany rose to record levels since the reunification of the country — €12.1 billion.

On the eve of the summit, schäuble in an interview with the DPA news Agency urged the Central Bank of the countries of “twenty” in more interaction. The Minister criticized the fed mixed signals to the market: in December, the fed hinted that it plans to tighten monetary policy, and eventually in January left the base rate unchanged.

As noted by The Financial Times, considerable attention will be paid to China, whose basic stock index Shanghai Composite on 25 February fell by 6.8%. From Beijing to confirm that he is not going to devalue the yuan to stimulate economic growth.

Prior to the meeting in the press discussed the possibility of an agreement between the G20 on currency interventions to support the Chinese yuan, and limit the growth of the dollar. A similar agreement was concluded in 1985 — it went down in history as “the agreement in the Plaza. Then the United States, Japan, Britain, France and Germany agreed to work together to weaken the dollar through foreign exchange interventions. The agreement was helped by the signatory countries to stimulate domestic demand, and the U.S. to support export production.

That the G20 countries should use the upcoming summit to agreement on coordinated currency intervention, said several reputable analysts and banks. In particular, coordination of efforts to support the yuan, said Deutsche Bank analysts. “The time has come for the United States and other global players to develop plans to support China in its transition to a market-determined exchange rate of the yuan,” said Bank analyst Alan Ruskin. The same said Bank of America analyst Michael Hartnett.

Nevertheless, the Minister of Finance of China Lou Jiwei. categorically rejected the possibility of a recurrence “of the Plaza-1985”. “This is just a media fantasy. Such a plan does not exist,” — said the Minister at the last week’s economic forum in Beijing.

Unrealized plans

Practice shows that even if the financial “twenty” will be able to agree on collective measures to overcome the global financial crisis and to stimulate economic growth, they will not necessarily be implemented.

In February 2014 at the meeting of Finance Ministers and Central Bank heads in Sydney resulted in a joint statement that the countries “the twenty” must achieve a cumulative growth of GDP by at least 2% in the next five years (which would have amounted to more than $2 trillion in real terms).

However, as the IMF notes, in the end, it was implemented less than half the key measures to achieve the goal. In Australia the parties then agreed on about 1000 different measures — from working on a common global infrastructure projects prior to the introduction of unified standards for automatic exchange of financial information (Common Reporting Standard). According to the University of Toronto and the Russian Higher school of Economics (*.pdf), during this time, the greatest success of the country “twenty” reached in the joint development of antimicrobials, worst of all fared in areas such as the phasing out of subsidies for fossil fuels or coordination of fiscal policy. But it was not completely fulfilled none of the obligations. The compound annual growth rate of GDP of G20 countries by 2018 will amount to only 0.8%.