So, “centre-left movement” no longer: Treasurer Joe Hockey has evidently tempered his views after his first, and successful, performance on the international stage over the weekend. He hosted G20 finance ministers and central bankers and emerged claiming his plan for growth had triumphed.
The group committed the world’s largest economies to work to lift economic growth by more than 2% over five years, an outcome Hockey had worked for, backed by the International Monetary Fund. But political volatility will make that difficult to deliver.
Growth targets and forecasts are usually not worth the paper wasted to project and justify them — just ask the IMF. Its January update to its World Economic Outlook saw the first increase in the global growth target for more than a year (in fact for six such updates) — after consistently getting its forecasts too high and having to revise them down. Or ask the Organisation for Economic Co-operation and Development, which last month admitted it had consistently missed the problems of the global economy in the past five years or so by underestimating the intensity of the eurozone crisis, among other key factors.
Not that we’re much better. The Reserve Bank of Australia has examined the accuracy of its own forecasts since the early 1990s and now warns those using them to be a bit more flexible. Likewise, the Australian Treasury has consistently overestimated the strength of the local economy for the past three years, especially the growth of government revenues and the impact of the strong dollar, and now tries to provide a range of forecasts levels.
And the 2% growth commitment (on top of existing forecasts) — or 0.4% a year for the global economy — will last for this year alone, despite what Hockey might argue to the Australian political audience as he seeks to use the protection of the G20/IMF policy to justify the 2014-15 budget. Turkey is the G20 host in 2015; given the state of its economy (with deep political problems for the ever-more repressive government of Recep Erdogan), what’s betting that country’s policies are different to those of the developed economies’ agenda pushed by Hockey, with the ammunition again provided by the IMF?
Turkey, India, Brazil and China were reportedly among those countries critical of the US Federal Reserve and its “tapering” of its quantitative easing at the weekend meeting (and before it). With the Fed continuing to taper through the rest of 2014, emerging economies are going to continue to face volatility and pressures on their finances, current accounts and currencies. Turkey’s leadership of the G20 therefore gives a major emerging economy the chance to push an entirely different line to that pushed by Hockey this year.
And over the next five years, the following countries have scheduled elections which could involve a change of government or economic tack — Brazil later this year, the United Kingdom next year, Australia in 2016, India this year, South Korea, Japan, the US (midterms this year, presidential and congressional in late 2016). France and Germany will have state elections, and then national elections (in 2017).
Given the global economy had real GDP estimated at just on $US72 trillion in 2012, the 2%-plus growth target is very modest — equal to just under US$400 billion a year of economic activity. The target is lower than the IMF’s 2.5% — suggested in a key paper for the summit that was tabled at the weekend meeting — which would add up to US$50 billion a year more than the G20 agreed.
The slow slide in Chinese economic growth, the looming GST change in Japan and the elections all have the potential to derail the G20 agreement, which in any event could simply produce a potpourri of measures with little or no cohesion. By the time finance ministers meet in Cairns in September ahead of the G20 summit in Brisbane in November, India will have a new government, while Brazil will just have held national elections at the start of October which could see a change of government, judging by the increasing political volatility in that country.
At least the US will have ended its midterm congressional elections. Trade protectionism has erupted in the US among Democrats and Republicans alike (the Trans-Pacific Partnership, which the Coalition is tightly hanging on to despite the huge problems of its intellectual property chapter) is in danger of being abandoned. But the US reneged on boosting the finances of the IMF, after agreeing to it at the last couple of G20 meetings, and playing a major role in convincing other countries of the rightness of the recapitalisation moves. And the congressional elections in November will also signal the start of Barack Obama’s lame duck status for 2015 and 2016.
Still, his G20 performance is a positive addition to Hockey’s so-far mixed record as Treasurer. To the extent that it strengthens his role within the government, that’s a good thing domestically, regardless of what happens with international growth targets.