Monetary magic is no substitute for policies to increase growth
The G20 FinanceMinisters and Central Bank GovernorsMeeting, to be held later this week in Shanghai, should try to drive home the message that cheap money has not been able to resolve the 2008 global financial and economic crisis.
And to avoid a repeat of that disaster, major global policymakers must seize the opportunity the Shanghai meeting offers to generate a new sense of urgency. They should make coordinated policy efforts to boost real economic growth.
Last week, the Organization for Economic and Cooperation Development lowered its forecast of global growth in 2016 from 3.3 percent to 3 percent. For developed countries, the OECD cut growth forecast for the United States by 0.5 percentage point to 2 percent, eurozone by 0.4 percentage point to 1.4 percent and Japan by 0.2 percent to 0.8 percent. For emerging economies, while keeping its forecast for China at 6.5 percent, it trimmed that for Brazil by 2.8 percentage point to -4.0 percent.
Such a dim global growth outlook is in line with the disappointing start of all major stock markets so far this year as well as the shocking 70-percent plunge in the price of crude oil since early 2015.
But this is definitely not what the unconventional monetary measures adopted by the central banks of rich countries had promised to deliver.
By drastically cutting interest rates to abnormally low levels in the wake of the worst global recession in more than seven decades, developed countries’ central banks once made a compelling case for cushioning their economies from a deep fall by easing the burden on home mortgages and other loans. More than seven years on, there is still no clear sign that the world economy is anywhere close to finding a solid footing amid an unprecedented flood of cheap money.