'May you live in interesting times' is a modern western saying that is often wrongly described as an ancient Chinese curse. But you get the feeling that those working on the Chinese G20 Presidency would be justified in feeling burdened with the curse of an interesting 2016.
G20 finance ministers and central bank governors are preparing to meet in Chengdu, in the Sichuan Province of southwest China, on Friday and Saturday. It will be their third gathering under the Chinese G20 presidency, and their final opportunity before Leaders gather in Hangzhou in early September.
Once again, near term economic challenges seem likely to dominate discussions. The IMF has downgraded its growth forecasts from what it expected three months ago by 0.1%, to 3.1% in 2016 and 3.4% in 2017. The Fund also warned of significant economic, political and institutional uncertainty, which could lead to future downgrades.
Events in recent months have certainly been as surprising as they are significant. Since the last time finance ministers met, voters in the UK have elected to leave the EU; a decision with enormous economic and geostrategic implications for both the UK and EU in coming decades, and broad implications for the way advanced economies are managing the flows of globalisation. IMF chief economist Maurice Obstfeld has said that Brexit threw a 'spanner in the works' of their world economic forecasts. It is sure to be a prominent topic of discussion over the weekend.
And something that has not even been included in the IMF's analysis is the recent activity in Turkey, a member of the G20’s three-member governing troika (involving each of the past, present and future hosts), which is managing the fallout of an attempted coup. This event will likely have profound ongoing political ramifications in an already uncertain part of the world.
These add to a long list of prominent challenges facing those around the G20 table. To name just a few, there are the risks associated with China's ongoing economic transition, the spillover effects of potential changes in monetary policy settings, elections in the US, an upcoming constitutional referendum in Italy, and the ongoing refugee crisis in Europe.
And while policymakers continually state their willingness to use all tools at their disposal (monetary, fiscal and structural), doubts remain over how constrained these tools are in a world of disaffected voters, heightened sovereign debt levels and already-accommodative monetary policy settings.
Against this backdrop, the IMF is urging a familiar prescription: political leadership from finance ministers and central bank governors. We were in a similar situation earlier this year, and the significant global financial market volatility at the start of 2016 and the panama papers scandal in April were not enough to jolt the G20 from its malaise. There are reasons to be cautious about seeing the necessary political leadership this weekend. [fold]
In classic style, China, as G20 host, is likely to push a technical, bureaucratic, long-term agenda. China’s presidency has long promised a vast array of blueprints, action plans, guiding principles, indices, strategies and cooperation initiatives. Such action has been a hallmark of recent agreements by Energy Ministers and Trade Ministers.
As I pointed out in the latest G20 Monitor, the two most recent meetings of finance ministers and central bank governors have shown encouraging signs of incremental progress in areas as broad as financial safety nets, climate finance, international tax, tax transparency, and financial regulation and investment. This meeting will need to be seen as deliver on the platform established at these meetings, and contribute to the ten major results that Chinese Foreign Minister Wang Yi foreshadowed would be delivered to leaders in Hangzhou.
The contributions are undoubtedly positive. However, a technical agenda of positive incremental change is not enough to convince commentators like former UK Prime Minister Gordon Brown of the G20's relevance. As Mohamed El-Erian noted, strange things happen when advanced economies persist in low, non-inclusive growth. And 2016 is just over half way through; there is plenty of time for it to get more interesting.
So we can only hope that 'this meeting is different' and ministers and governors heed the calls to demonstrate political leadership. There needs to be a much clearer sense on how the G20 is managing risks and getting out of the low, non-inclusive growth path. Martin Wolf has suggested several areas of action, which includes reforming capitalism, greater demand support, prosecuting an enhanced tax agenda, and fighting the quacks. These are all sensible areas for the G20 to be involved in.
On a more basic level, if the finance ministers and central bank governors of the economies with the most stake in the current liberal economic order won’t make the political case for preserving it, then who will?
Photo: Getty Images/VCG