Mon­e­tary magic is no sub­sti­tute for poli­cies to in­crease growth

China Daily (Canada) - - LIFE -

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.

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