The global economy needed this weekend’s Group of 20 meeting in China to produce a “Sputnik moment.” Instead, and despite growing awareness of the risks to growth and financial stability, the gathering concluded essentially with a reheated version of previous policy statements. This is a far cry from the individual and collective actions that G20 members must take if the global economy is to avoid even more disappointing growth and greater financial instability.
Meeting in Shanghai, the ministers of finance and central bank governors of the largest economies seemed a lot more worried about the prospects for global economic growth, and understandably so. They also recognized that the policy mix being pursued in many of their countries remains highly imbalanced, perpetuating an excessive reliance on central bank experimentation.
It was hoped, though not expected, that this increased awareness of danger would jolt policymakers, as was the case in 1957, when the Soviet Union’s successful launch of Sputnik shocked the U.S. and united it behind an invigorated approach to the space race.
The growing concerns about the global economy and markets, however, haven‘t resulted in much more than the reiteration of past policy commitments that have struggled to gain traction.
Judging from publicly available information, there is little coming out of the G20 to suggest major improvements in the policy mix of the most systemically important countries. Instead, rather than using “all policy tools -- monetary, fiscal and structural,” as stated in the G20 communique, these countries will continue to be constrained by political realities and will remain inclined to continue to rely excessively on increasingly exhausted central bank policies, whose effectiveness is being undermined by greater threats of collateral damage and unintended consequences.
The G20’s call for collective responsibility and action was equally muted, given the risks facing the global economy. Lacking the urgency of immediate crisis conditions, officials came nowhere close to what they achieved in April 2009 in London, when an impressively coordinated policy approach helped avoid a multiyear global depression.
With little hope for major policy changes, global economic growth will continue to struggle, the trifecta of national inequality (income, wealth and opportunity) will worsen and financial volatility will increase. These conditions will set an even more worrisome context for country officials when they next come together in April in Washington for the spring meetings of the International Monetary Fund and the World Bank.
Should financial leaders fail to seize that opportunity for a Sputnik moment, the world would take another step toward the point when low growth could give way to recession, bouts of financial volatility could evolve into more damaging financial instability, and worsening inequality could fuel greater political dysfunction that undermines future generations along with ours.
By Mohamed A. el-Erian
Mohamed el-Erian, a Bloomberg View columnist and chief economic adviser at Allianz, is chairman of Barack Obama‘s Global Development Council, ex-CEO of Pimco and author of “The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse.” --Ed.
