G20 summit doomed to a legacy of economic disappointment - by Hamish McRae
If the April G20 meeting was perceived as a success.The Pittsburgh one may be seen more as a failure. That might seem a bit rough, for the meeting is only just beginning. But the reason has nothing to do with the meeting itself. It has more to do with the state of the economic cycle and the nature of government and central bank intervention. And the conclusion is that the next six months is likely to be a rougher period than the past six.
It is not possible for most governments to provide a further fiscal stimulus. The deficits are too big. Here in Britain we will see fiscal policy tightening next year, whoever is in power. Next year will also see monetary policy tightening, with the exceptional measures to boost money supply coming to an end and by the end of the year interest rates starting to rise. Indeed the central banks yesterday indicated that they would start to scale back their emergency liquidity programmes. In a co-ordinated announcement the Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank set out various measures designed to show that things were getting back to normal.
As the various other schemes to boost the world economy come to an end – the cash for old cars, the cut here in VAT and the various fiscal boosts worldwide – the drive for growth will have to come from the private sector, and in particular from consumption. There are a number of reasons to suspect that consumers throughout the developed world will be pretty cautious for some months yet. You can already catch a little of that caution, particularly here in the UK, but also in the US and Europe. By early next year people may be quite angry, and quite fearful, of what has been happening. We would be less than human if we did not blame the policy-makers for the economic woes.
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