During the last weekend in February, finance ministers from the G20 met in Shanghai to discuss the current state of the global economy. Going into the meeting there was optimism that a coordinated effort for reform and fiscal stimulus may be in the works, but alas the meeting ended with a commitment to cooperation but no definitive agreement. It seems that comments from Germany’s finance minister as well as U.S. Treasury Secretary Jack Lew damped the optimistic expectations. Mr. Lew commented that “it would not be reasonable to expect a crisis response in an environment that is not a crisis.”
For background, the G20 (or Group of Twenty) was originally conceived as an international forum where economic ministers and central bank governors could communicate and collaborate on economic policy measures to foster global growth. While operating independently from the more politically focused Group of Seven (G7) forum, the G20 was first established during a G7 meeting in 1999. The G7 includes the U.S. and other economically developed nations such as Germany, France, Italy, Canada, and Japan. While these combined nations represent a substantial economic force (accounting for roughly 40-50% of GDP), they only represent about 15% of the global population. The G20 on the other hand expands membership to emerging market countries throughout Asia, Latin America, and the Middle East. Combined the G20 represents about 85% of global GDP and two thirds of the world’s population.
The current meeting held in February only included economic ministers and is a precursor to a larger summit scheduled for the fall. Since the financial crisis of 2008, heads of state have participated in the main annual summit as a way to bridge important political and economic issues and give recognition to the increased impact that emerging markets have in the world today. While the lack of a global coordinated response this time was a disappointment, markets have since shrugged off the news.
Nicholas Case, CFA®
Senior Investment Analyst