What’s Growth Target?

“Yes, we can” was after all the message the world’s twenty major economies delivered from Sydney, Australia.

Financial ministers and central bankers of Group 20, which consists of 85% of world economy, agreed on upholding a target to lift their collective gross domestic products by more than 2% above current policy’s expectation over the coming 5 years. Because it was unusual for G20 to have a numeric target, the chairman of the conference, Joe Hockey, Australian Treasurer, looked exciting as if he was standing on a historical moment. Nikkei Newspaper emphasized Hockey’s excitement citing his words, “This is the first attempt.”

According to Nikkei, Australia led the introduction of numerical target, negotiating with the United States from the last yearend. To urge fiscal stimulus of Germany, U.S. supported the idea of Australia to have numerical target in final communiqué. By cooperating Australia’s leadership, U.S. won a soft description on its monetary policy. “This eventual development would be positive,” said communiqué about U.S. monetary policy, “for the global economy and reduced reliance on easy monetary policy would be beneficial in the medium term for financial policy.”

On instability of emerging economies, U.S. escaped an apparent defeat. While the meeting reconfirmed the necessity of taking care of the impact U.S. tapering policy would have on emerging countries, the communiqué stressed that “our primary response is to further strengthen and refine our domestic macroeconomic, structural and financial policy frameworks.” Nikkei quoted the phrase as a requirement to the emerging economies for tackling high-level inflation and current-account deficit.

Germany was frustrated. German Minister of Finance, Wolfgang Schäuble, made a negative comment on newly introduced target. “Economic growth is a result coming through complicated process. Politicians cannot guarantee that result,” he told in his press conference. Chinese Finance Minister, Lou Jiwei, told Chinese media that “If we are to raise growth target by 2%, it becomes 9-10% (in China). But, do not expect that.” It seems to be unlikely for Germany and China to be positive in fiscal stimulus.

Japan is neither winner nor loser, just following Australia-U.S. coalition. “We are having fundamental measures in deregulation,” told the Chairman of Bank of Japan, Haruhiko Kuroda. However, Japan’s growth policy is revealing its weakness with deterioration of competitiveness in world market. It is predicted that growth rate in FY 2014 will slow down with the impact of higher consumption tax rate this April. Japan is too busy in domestic policy to contribute to the overall management of world economy.