- Amidst the current global slowdown, the G20 summit at Osaka is expected to bring world leaders on the same page on the path towards recovery.
- This article is an attempt to understand the current slump in the global growth rate, reasons behind them and expectation from G20 to turn the tides.
Backdrop: Global slowdown
- According toIMF’s World Economic Outlook, 2019, the global growth rate in 2019 (at 3.3%) will be the lowest since the global financial crisis of 2009.
- The World Bank Group’s Global Economic Prospects 2019 also pegs the world economy to grow at weaker than 2.6% in 2019.
Reasons Behind The Current Global Slump
The major threats to global growth in the current scenario include
- Declining world trade by volume: According to IMF the rate of global trade by volume in 2019 will grow by 3.6% as compared to 3.8% in 2018.The following are the main reasons for decline in world trade-
- US is imposing steep tariffs on products from its trade partners including India.
- This is not expected to change as Trump administration is rallying on the ‘protectionism’ sentiment in the domestic politics.
- US is increasingly questioning the relevance of WTO as a multi-lateral trading system in the recent times.
Escalating US-China Trade War
- Besides steep tariffs in various sectors including steel, aerospace, information and communication technology, machinery etc, US has imposed new investment restrictions on Chinese companies in USA.
- In turn China retaliated by imposing reciprocal tariffs on U.S. imports, including pork, wine, fruit and steel.
- Geopolitical Undercurrents: The world is in the cusp of a sharp transition with a possible emergence of another Cold War.The escalating tensions between
- US and China
- Trade wars
- Over domination in Indo-Pacific
- US and Russia
- Withdrawal from INF
- Loggerheads in Syria
- Possible fall out of New Start etc
- Turmoil in West Asia
- US’s withdrawal from 2015 nuclear deal and consequent sanctions on Iran, Saudi-Iran conflict in Yemen etc, have all lead to a war-like situation in west-Asia.
- This significantly affects the ‘energy security’ of the world with slowing supplies and rising fuel cost across the world.
- Decline of FDIs mainly in Euro zone: The FDI inflows across the world have been on the decline significantly affecting the global growth.The main reasons are
- Weakening demand in Euro zone
- The threat of a no-deal Brexit
- Threats to Sustainable Development: The US’s withdrawal from Paris Agreement and consequent dent on climate finance will significantly affect the developing countries and LDCs to adopt sustainable development pathways severely affecting their growth rates.
- Rising Air Pollution Levels:The 1st ever Global Conference on Air Pollution and Health held in October 2018, pegs the cost of air pollution at $5 trillion per year dragging the global growth downwards.
- Lack Of Consensus In Global Governance In Data Flow: The world is divided on the cross-border data flow debate with EU, US and the west pushing for free flow of data and Asian countries opposing it.Data being the new engine of growth in 21st century, this is bound to have a serious effect on the global growth
- Free trade: G20communiqué drafted by Japan highlights promotion of free trade and de-escalating US-China trade tensions.
- Osaka Track: Japan is expected to push for a world in which there is free flow of data across borders to countries with high levels of privacy protection, data security and intellectual property right.
- Geopolitical maneuvers: On the sidelines of G20, India will meet the countries in bilateral and multilaterals like India-US, India-Japan, BRICS, JAI (Japan-America-India), RIC (Russia-India-China). These bilateral and multilaterals may be used by India to bring about solution in Iran, issue of climate finance, waiver under CAATSA for S-400 deal with Russia etc.
- Reform in WTO and IMF
- G20 is also expected to evolve open and fair platforms for multilateral trading order with more say to developing countries.
- A consensus on e-commerce trading rules.
- IMF quota reform to give more representation to emerging market