A change in tone from the G8?
Promoting growth and jobs is our top priority. We agreed to nurture the global recovery by supporting demand, securing our public finances and exploiting all sources of growth. The fight against unemployment, particularly long-term and youth unemployment remains critical in our domestic and collective agendas.
The official communiqué puts jobs, growth and the need to support demand, front and centre. Something which is obviously welcome.
This a big shift away from the G8 statement of 2010 and closer to language of 2009 when the G8 decided that:
We will take, individually and collectively, the necessary steps to return the global economy to a strong, stable and sustainable growth path, including continuing to provide macroeconomic stimulus consistent with price stability and medium-term fiscal sustainability, and addressing liquidity and capital needs of banks and taking all necessary actions to ensure the soundness of systemically important institutions.
If 2009 was about taking all necessary steps to support growth, then 2010 signalled a global turn to austerity economics and 2013 looks to be taking some tentative steps back from that.
Especially striking in yesterday’s note was the following phrase:
Global economic prospects remain weak, though downside risks have reduced thanks in part to significant policy actions taken in the US, euro area and Japan, and to the resilience of major developing and emerging market economies. (My emphasis)
It is hard to read praise of actions from the euro area, the US and Japan as anything other than implicit criticism of policy in Canada and the UK.
The statement also argues that:
Decisive action is needed to nurture a sustainable recovery and restore the resilience of the global economy. Advanced economies need to balance supporting domestic demand with reforms to tackle structural weaknesses that weigh on growth, while implementing credible fiscal plans…
Restoring medium-term fiscal sustainability remains a priority. Fiscal policy should allow for near-term flexibility to accommodate economic conditions including through focusing on the structural deficit as appropriate. The pace of fiscal consolidation should be differentiated for our different national economic circumstances.
As is common with most official statements following an international meeting, different world leaders will read into this statement whatever they want to read. George Osborne will no doubt argue that the reference to “restoring medium-term fiscal sustainability” being “a priority” means that fiscal policy is being set in accord with global advice.
But this is quite a stretch, the crucial line is really the need to “allow near-term flexibility”. This accords neatly with the advice of the IMF to UK – boost capital spending now.
Now, much like the EU’s own recent much trumpeted “turn from austerity”, it is important not to read too much into this. The G8 have stopped short of a call for immediate stimulus. But this is still a significant development.
It is worth remembering that 2010 saw a big shift away from stimulus and towards the need for fiscal consolidation, not just in the UK but globally. George Osborne made much of this at the time, arguing in his first Budget speech that:
The view of the international community was clearly expressed at the latest G20 meeting, and we will be taking the same message to the G20 summit in Toronto this weekend. Surplus countries should do more to support global demand. So we welcome China’s announcement to come off the dollar peg. At the same time, the international community believes countries with high fiscal deficits need to accelerate the pace of fiscal consolidation. That is precisely what we now propose to do.
A lot has happened since 2010. Growth has been much weaker than expected and in both the UK and across the Eurozone, the impact of austerity on a weak economy has been exposed. Weaker growth, weaker than expected tax receipts and little progress on deficits.
Faced with the evidence of the last three years there are two possible reactions – either follow the path of the IMF, revisit your assumptions and think again or continue on regardless ignoring the evidence.
Reading the G8 statement it looks like many world leaders have followed in the path of the IMF, we can only hope George Osborne will do the same. But whatever the Chancellor chooses to do, yesterday’s statement makes it much harder for him to claim his policies are in line with the international consensus.