Ten years since the global financial crisis, trade tensions are rising and confidence in multilateralism, the backbone of prosperity and stability since the second world war, is being challenged. At the same time, widening inequality is sapping the foundations of democratic institutions.
At such a time, the G20 nations, representing 85 per cent of global gross domestic product between them, have a duty to uphold their long-held mission: to ensure “strong, sustainable, balanced and inclusive growth”.
The Japanese presidency of the G20 is now in full swing, preparing for the Osaka summit and Fukuoka finance ministers and central bank governors meeting in June. I took part in the first G20 summit meeting in 2008, and I am convinced of the group’s power to marshal co-operation in tackling challenges faced by the international community.
Now that the financial crisis is behind us (although risks to financial stability remain) it is high time the G20 set out to tackle longer-term structural issues that weigh on economic growth — namely, ageing and global imbalances.
Living longer is a blessing, but ageing populations have an impact on growth in many countries. A shrinking labour force puts pressure on output and reduces investment opportunities amid poorer growth prospects. Meanwhile, rising age-related spending, such as for pensions and public health systems, tends to erode the fiscal balance. Countries with rapidly ageing populations need to make savings now to prepare for the future, exporting capital to capital-scarce young countries that are rich in investment opportunities.
One caveat: today’s elderly people (including myself, at 78 years old) are much healthier than previous generations. Harnessing the potential of a healthy elderly population could be an important way to counter the negative impact on growth.
Ageing is not a problem confined to advanced nations. It affects emerging economies, too. Some of them are growing older more rapidly than advanced economies have done. For these countries, broadening social security coverage while safeguarding growth and fiscal sustainability will be a big challenge. Sharing best practices across the G20 will help both ageing and younger emerging economies alike.
The problem of global trade imbalances has also become pressing. Heated debate between deficit and surplus economies is nothing new. But tensions are rising, with tariff increases and non-tariff measures materialising in many parts of the world. Under the Japanese presidency, the G20 is exploring policy options to mitigate the problem.
National current accounts today look quite different from what textbooks taught us to expect. Goods trade, traditionally the stalwart of the current account, has given way to other components, such as earnings on foreign investment and services trade. In 2017, Japan ran a current account surplus of 4 per cent of GDP, driven by earnings on foreign investments (which made up 3.6 per cent of GDP). The UK, while running a current account deficit of 3.8 per cent of GDP, reflecting a large deficit with trade in goods, had a surplus with its services trade of 5.4 per cent of GDP.
A country’s current account balance is a reflection of the composition and nature of its growth. In other words, a global imbalance implies underlying domestic imbalances. There are several factors that contribute, from excessive corporate savings, to poor coverage of social safety nets, to overheating asset markets — as was observed in the run-up to the 2008 crisis.
The joint G20-IMF seminar on global imbalances, to be held in Washington on 10 April, will provide a good venue for policymakers and academics to delve into such issues. I look forward to fostering closer international co-operation through the G20 to help build a more prosperous and stable world.
