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Issue 37 | September 2016

Global Economics Monthly

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The G20 Disappoints on Policy

Robert Kahn, Steven A. Tananbaum Senior Fellow for International Economics

Bottom Line: At the Group of Twenty (G20) Summit in Hangzhou, China, leaders called for governments to do more to support growth, but offered little in the way of new measures. Quietly, and away from the G20 spotlight, fiscal policy is becoming more expansionary, but current policies are unlikely to provide a meaningful boost to growth or soothe rising populist pressures.

Fiscal Stances in G20 Countries

Last week’s Hangzhou communique disappointed observers hoping for a growth-boosting package of fiscal and structural reforms. Aside from cementing previous agreements on climate and tax compliance, there were no real economic achievements. A coordinated fiscal stimulus package from G20 countries, like in 2009, will not occur this year. Nonetheless, a careful look at the data shows a shift across the G20 countries toward larger fiscal deficits and, in a few cases, toward a more expansionary spending policy. Japan, China, the periphery of Europe, and some emerging markets all display this shift. Even in the United States, the fiscal squeeze of recent years has begun to ease. However, additional fiscal stimulus seems unlikely. Many countries remain hamstrung by high debt levels and gridlocked politics, and other countries, such as Germany, continue to resist using available fiscal space to boost European activity above its trend rate. As a result, global growth is likely to remain anemic.

The G20 Call to Action

Beginning in February, G20 finance ministers and central bank governors have called repeatedly for more aggressive growth-oriented policies in their communique:

"Over the last several years, the G20 has made important achievements to strengthen growth, investment and financial stability. We are taking actions to foster confidence and preserve and strengthen the recovery. We will use all policy tools—monetary, fiscal and structural—individually and collectively to achieve these goals. Monetary policies will continue to support economic activity and ensure price stability, consistent with central banks’ mandates, but monetary policy alone cannot lead to balanced growth. Our fiscal strategies aim to support the economy and we will use fiscal policy flexibly to strengthen growth, job creation and confidence, while enhancing resilience and ensuring debt as a share of GDP is on a sustainable path."

This message has been reinforced by the International Monetary Fund (IMF) and other international organizations with increasing urgency and anxiety as the year has gone on, most recently in the IMF’s report for the G20 summit. Observers have scrutinized each G20 statement for evidence of policies that would match the G20’s words. Time and again, those wishing for growth-oriented policies have been disappointed. Still, looking across the G20, in most cases fiscal policy has been easing in practice (both compared to last year and to forecasts for 2016 made at the start of the year), in some cases substantially. This easing occurred through allowing larger deficits (Canada and the United States), reducing surpluses (Germany), or delaying planned deficit reduction (France, Italy, and Japan). The exceptions include Latin America and Russia, where domestic pressures are forcing consolidation. Although the weakening in fiscal policy has been the autonomous result of a weaker global outlook (what economists call automatic stabilizers) in some cases, part of the loosening is the result of specific policies that will have a sustained impact. Read more »


Looking Ahead: Kahn's take on the news on the horizon


One year after Ukraine’s debt restructuring deal, investor confidence, rattled by continuing conflicts in the country’s east, remains cautious and fragile. What is equally worrying is Ukraine’s slow progress in implementing needed reforms, which has caused a delay in completing the second review of its IMF program and receiving the next tranche of aid. An IMF board meeting is scheduled for September 14.

Emerging Market Debt

Corporate debt in emerging markets will likely experience a negative net issuance of $21 billion in 2016, with $118 billion maturing after nearly a decade of rapid expansion. Although this deleveraging process soothes the anxiety about high debt, the repayment ability of some corporations is still in question. The process also reflects debt-issuing companies’ rising concerns about investment profitability and the broader sluggish macroeconomic environment.


The crisis continues to deepen in Venezuela, underscored by a sharp recent deterioration in oil production, but the government is moving forward with a bond swap to make fall payments on state and energy-company debt. Still, default is a question of when, not if.



Turkey’s Shaky Economy: a Local or Global Concern?

Robert Kahn 

Emerging markets have held up impressively in the aftermath of the Brexit vote last month. Turkey’s importance in global markets on the surface appears small relative to factors like Brexit, so it's reasonable to expect that Turkish markets eventually will find their footing and the risks will remain local. But any sense of a significant economic problem in Turkey, an important and liquid emerging market, could pull an important prop out of the benign emerging market story. That could be the economic legacy of this weekend’s events. Read more »

Brexit’s Threat to Global Growth

Robert Kahn 

Thursday’s Brexit vote wasn’t a “Lehman moment”, as some have feared. Instead, it was a growth moment. And that may be the greater threat. If policymakers respond effectively, the benefits could be substantial: a stronger global economy, and an ebbing of the political and economic forces now pressuring UK and European policymakers. Conversely, failure to address the growth risks could cause broader and deeper global economic contagion. Read more »

Britain’s Bold Leap into the Unknown

Robert Kahn 

Britain’s vote to leave the European Union was fueled by a broad range of social and political concerns, including a fear of immigration, resurgent nationalism, and a populist rejection of UK and European policies, institutions and policymakers. But it is also an extraordinary economic experiment. Read more »



The Maurice R. Greenberg Center for Geoeconomic Studies (CGS) works to promote a better understanding among policymakers, scholars, journalists, and the public about how economic and political forces interact to influence world affairs.

Brad W. Setser
Senior Fellow and Acting Director of the Maurice R. Greenberg Center for Geoeconomic Studies Expertise

Edward Alden
Bernard L. Schwartz Senior Fellow

Thomas J. Bollyky
Senior Fellow for Global Health, Economics, and Development

Willem H. Buiter
Adjunct Senior Fellow

Blake Clayton
Adjunct Fellow for Energy

Heidi Crebo-Rediker
Senior Fellow

James P. Dougherty
Adjunct Senior Fellow for Business and Foreign Policy

Jennifer Harris
Senior Fellow

Miles Kahler
Senior Fellow for Global Governance
Robert Kahn
Steven A. Tananbaum Senior Fellow for International Economics

Sebastian Mallaby
Paul A. Volcker Senior Fellow for International Economics

Meghan L. O'Sullivan
Adjunct Senior Fellow

Peter R. Orszag
Adjunct Senior Fellow

Kenneth S. Rogoff
Senior Fellow for Economics

Varun Sivaram
Douglas Dillon Fellow

Matthew J. Slaughter
Adjunct Senior Fellow for Business and Globalization

A. Michael Spence
Distinguished Visiting Fellow

Benn Steil
Senior Fellow and Director of International Economics
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