IMF says G20 could do better
In a report to be published with the final communiqué, the IMF says that the G20 countries' economic plans carry "serious downside risks" for the global economy - and their leaders could do much more to promote global growth and employment.
The report says the policies that countries now plan to pursue carry "significant downside risks". If those risks were to materialise, the Fund reckons that global output could 3 per cent ($2.25 trillion) lower than currently forecast, and an extra 23 million jobs could be lost.
The Fund's staff calculate that more constructive collaboration between countries on their economic and exchange rate policies would mitigate these risks, and increase global output by $1.5 trillion dollars over the next 5 years, relative to the path that countries are now on. It would also create around 30 million more jobs.
A crucial feature of this better future would be faster reduction of government deficits in countries such as the US, and more domestic-demand based growth in countries with large trade surpluses such as China and Germany.
In the "upside" scenario painted by the Fund, Germany's current account surplus would be more than 1 per cent of GDP lower by 2013, than under existing plans. The average surplus in Asian emerging market economies would be 3 per cent of GDP lower by that time. The US budget deficit would be 3 per cent of GDP lower by 2014 than the IMF would now expect.
In a separate report, the World Bank estimates that greater collaboration along the lines suggested by the Fund would lift an extra 33 million more people out of poverty over the next 5 years.
In recent months, G20 countries have submitted their economic plans to the IMF - which would then assess what the net impact would be on the global economy.
"At face value", the report says, countries' plans "appear to deliver strong, sustainable and balanced growth." However, considering the past experience of recovering from financial crises, the authors believe that countries are being too optimistic in their growth forecasts.
Even if the growth does materialize, the IMF says that a number of rich country governments are not planning to do enough to cut borrowing. "Also, rebalancing of global demand was viewed as not being strong enough to sustain high global growth and achieve low unemployment."
The IMF was supposed to be telling the G20 whether their plans "added up". The answer given in this report is that they do - but the sum of the parts could be much higher.