Updates from Group of 20 (G-20) meet

At a recent G-20 meet in Shanghai where finance ministers and central bankers from the group of 20 largest economies met, the main aim was to calm down growing concerns which are impacting the global economic growth. Also, the group wanted to discuss about aspects including the sharp deceleration in Chinese economy which could bring back the world into recession. Among the various threats faced by the global economy, downside risks and vulnerabilities have increased which indicate volatile capital flows, commodity price plunge and the potential exit of U.K. from the European Union which we will discuss in the later part of the article. Also, significant capital outflows and dips in China's stock markets eroded a major portion of respective market capitalization which reflects the weakening confidence with regard to China. Post its two-days discussions, the G-20 stated that it would use all the three policy tools - monetary, fiscal and structural - in order to strengthen growth, boost investment and ensure stability in financial markets. Germany has shown discomfort over fiscal and monetary stimulus. The Organization for Economic Cooperation and Development (OECD) suggests that a stronger collective policy response with all three levers is required and monetary policy cannot work alone. The G-20 meet consensus statement also reaffirmed a pledge for countries to refrain from undervaluing their currencies to gain a competitive edge as we saw with regard to devaluation of China and Japan's currency.
 

Growth trends (Source: Thomson Reuters)
 

Global economy and growth levels

Global recession is being defined to be a state wherein growth reaches a value below 2%, as per the Citigroup, and this is different from the usual requirement of falling gross domestic product for two consecutive quarters. As per Citigroup analysis, global growth was unusually weak in the fourth quarter of 2015 at around 2% year-on-year mainly led by weaker fundamentals, worsening in the prospects for the advanced economies, a large increase in the uncertainty about the advanced economies' outlook (notably for the U.S.) and a tightening in financial conditions everywhere. To add further, concerns over a structural and cyclical slowdown in China and its unsustainable currency regime dented the global economic growth. Meanwhile, the global growth is forecasted at 2.5% in 2016 and around 2.2% (if adjusting for the possibility of Chinese data is not being measured accurately). Citigroup particularly notes that the U.S. growth is a major factor in leading the global growth and thus any falter in U.S. economy would significantly affect the global economy.
 

Britain exit from EU

Given the recent turmoil of markets due to concerns on the world economy, market is abuzz with Britain’s possible exit from the European Union. In the recent G-20 meet, Chancellor George Osborne confirmed along with fellow finance ministers and central bank chiefs that a vote to leave the EU by Britain would be one of the biggest economic dangers this year. London Mayor Boris Johnson has clarified his position over the idea that a vote to leave the EU could force Brussels to give Britain a better deal over its membership and trigger a second referendum. Mr Johnson had previously suggested that only by voting to leave would the U.K. "get the change we need".
 


Equities Performance (Source: Thomson Reuters)
 

U.S., Germany & Brazil

In its recent forecast, the OECD cut its 2016 estimates for the U.S. and Germany by 0.5 percentage points. The U.S. is now seen expanding 2% in 2016 and 2.2% in 2017. German growth will be 1.3% and 1.7% respectively. It further adds that U.S. is facing an intensification of headwinds, including the drag on exports from the stronger dollar and energy sector investment from low oil prices. Meanwhile, Canada, like other oil exporters, is suffering from crude slump and is expected to grow 1.4% in 2016, as compared with its previous forecast of 2%. South America's biggest economy, Brazil is currently in recession and it’s proving deeper and longer than predicted. OECD estimates a 4% narrow down in its economy in 2016 which is a downward revision of 2.8 percentage points to the earlier forecast. Brazilian output shrank 3.8% in 2015 and is seen stabilizing in 2017.

 
Global growth outlook

The G-20 meet comments that after years of money printing and historic low interest rates across much of the developed world, the outlook for growth is still uncertain and that monetary policy alone could not bring balanced growth. It believes that the global recovery continues, but it remains uneven and falls short of its ambition for strong, sustainable and balanced growth. The OECD recently cut its global growth forecasts, with Brazil, Germany and the U.S. slowing down and indicating that some emerging markets are at risk of exchange-rate volatility. Global gross domestic product is likely to expand 3% in 2016, the same pace as in 2015 and 0.3 percentage point less than predicted in November 2015.

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