G20: Likely push for forceful action to avoid a low-growth trap - Rabobank

Michael Every, Head of Financial Markets Research at Rabobank, suggests that this weekend sees the latest iteration of the G-20 meeting, which like the Champions League, and the Eurovision song contest seems to have endless qualifying rounds before we get to the main event with the leaders.

Key Quotes

“According to the press, the IMF are going to use the summit to champion globalization and to push for the use “forceful action” to avoid a “low-growth trap”. Isn’t this the same IMF who have put out research that admits globalization has been the cause of rising inequality, that in turn is dragging down growth rates? Moreover, isn’t this ‘call to action’ the same one we’ve heard all year from the IMF and OECD – to no obvious effect outside China (where it’s all fiscal policy a-go-go right now) and Japan (who is tip-toeing towards getting truly radical this month); and how does a potential Fed rate hike(s) in the midst of all this help matters?

It would certainly be interesting to be a fly on the wall as some of the G-20 leaders start to worry about who might be sitting in their chair and enjoying their luxurious dinner at the next summit if their own economy doesn’t improve rapidly from here. Yet is that the right atmosphere for co-operation, or for recrimination? Those who have seen or read the Thin Ice presentation may recall the less-than-stellar outcome of the last-ditch 1933 World Economic Conference held to battle the crippling Great Depression. The US would not agree to a strong USD when there were no other candidates to play that role, and FX Wars and protectionism consequently got even worse; and – indicative of how things stood at the time, and we all hope they never will again, anywhere – Germany’s contribution was to advocate a colonial Lebensraum policy as stimulus.

Fortunately, we can be certain that the global pow-wow’s rhetoric will be infinitely better this time round, but sadly we can’t assume the same for actual action. If so, back to the status quo of the trend lower in bond yields we go, with the only possible near-term disruption from the payrolls and the Fed.”