We enter 2014, the Chinese year of the horse, with the global economy in much better shape and further signs of recovery in many major economies. Setting aside some not unexpected volatility as the US Federal Reserve begins to reduce supportive monetary policy, market sentiment has improved.
We are seeing good growth in the US; Japan’s policies seem to be having an effect, China’s growth remains robust and Euro area growth is showing some signs of picking up while the banking system’s stability is improving – although obviously I touch wood when I say this. In emerging market economies, significant progress has been made in improving their openness and resilience to market fluctuations.
Two main challenges lay ahead for the global economy and they are ones business leaders are discussing over the next few days in Sydney where I have been chairing the B20 Financing Growth Taskforce as part of the G20 Finance Ministers and Central Bank Governors meetings.
G20 Finance Ministers led by Australia’s Treasurer Joe Hockey want to achieve growth and create jobs. They may well agree on a G20 growth target. Business leaders – through the B20 business leaders’ forum – can help them develop and achieve their growth strategies. The G20’s plans to foster private sector growth will hopefully align to our views and I know Treasurer Hockey is committed to deepening G20-business engagement.
Economic growth, critically, depends on the availability of credit. One of the major impediments to the expansion of credit is the overhang of uncertainty about regulation. For business, and for the global economy, the best outcome will be for the G20 Finance Ministers to finish implementing what was earlier agreed, pause and take stock of the ‘real economy’ effects of post-GFC regulation.
We are now in a post-GFC recovery phase and emphasis should increasingly shift to actions which restore confidence in markets, support business growth and create jobs. A key direction being taken by the B20 Financing Growth task force is better understanding the cumulative ‘real economy’ effects of the post GFC regulation. We aim to illustrate this to the Finance Ministers and G20 leaders.
The B20 could and would be willing to take a bigger role in assisting G20 Ministers develop and implement their reform agenda, including the development of regulations by the international regulatory bodies, Basel Banking Committee, FSB and IOSCO. More intense engagement would deliver better designed rules and possibly speedier implementation and a clearer identification of priorities. The existing G20 commitments need to be completed as the true benefit of reforms comes from wide spread adoption and the reduction in systemic risk. Having “real world” business people involved, who are more sensitive to the practical consequences, is vital.
I believe this business engagement is particularly important for emerging markets which will provide the “delta” or extra growth for the global economy as growth in the mature west moderates. B20 members are particularly concerned growth in emerging market economies is being slowed by the multiplicity of new regulatory standards.
It is important that any principle or rules-based approaches adopted by international regulators accounts for financial systems that are at different stages of development. Asia, which will be half the global economy by 2050, needs to be more central in this discussion. The adoption of policies that open up markets and reduce barriers to increased trade and capital flows will underpin growth in all countries.
Governments and the private sector should also focus on stimulating significant economic growth through prudent infrastructure investments. There are currently large pools of long-term funds, such as pension funds, insurance companies and sovereign wealth funds looking for appropriate investments. The tightening of prudential and regulatory requirements for banks means that there is an increasing role to play in infrastructure financing by capital markets and institutional investors.
This is the way forward for global growth, a proper focus for the G20 and a cause in which the B20 is both willing and able to assist. It is not time to forget the lessons learned or the effects of the crisis but it is time to focus on growth and creating jobs.
Photo Credit: Getty Images / Bloomberg
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