BoE chief says lack of re­forms to blame for weak growth

The Pak Banker - - COMPANIES/BOSS -

The Bank of Eng­land's gov­er­nor has de­fended cen­tral banks' moves to spend tril­lions of dol­lars on mon­e­tary stim­u­lus, say­ing the lack of ac­com­pa­ny­ing struc­tural fixes were to blame for the fail­ure to re­vive global growth.

Gov­er­nor Mark Car­ney told a gath­er­ing Group of 20 cen­tral bankers and fi­nance min­is­ters in Shang­hai on Fri­day that global growth was a "se­rial dis­ap­point­ment" of some­times spec­tac­u­lar pro­por­tion, which he at­trib­uted to "weaker po­ten­tial sup­ply growth in vir­tu­ally all G20 economies." "This un­der­per­for­mance is a re­minder that de­mand stim­u­lus on its own can do lit­tle to coun­ter­act long-term forces of de­mo­graphic change and pro­duc­tiv­ity growth," he said, ac­cord­ing to a text of his speech re­leased by the BoE. Mon­e­tary stim­u­lus did have value, he said, in that it sup­ported eco­nomic ac­tiv­ity while parts of the econ­omy de-lev­ered, and it bought time for struc­tural changes, such as shift­ing ac­tiv­ity from de­clin­ing to grow­ing sec­tors. It also bought time to fix the "fault lines" in fi­nan­cial mar­kets that helped cause the fi­nan­cial cri­sis, as well as to build a more ro­bust bank­ing sys­tem.

In­stead, Car­ney said, "global growth has dis­ap­pointed be­cause the in­no­va­tion and am­bi­tion of global mon­e­tary pol­icy has not been matched by struc­tural mea­sures."

"In most ad­vanced economies, dif­fi­cult struc­tural re­forms have been de­ferred," he added. "In par­al­lel, in a num­ber of emerg­ing mar­ket economies, the post-cri­sis pe­riod was marked by credit booms re­in­forced by for­eign cap­i­tal in­flows, which are now bru­tally re­vers­ing.

Car­ney's pointed com­ments came in the wake of crit­i­cism from the In­ter­na­tional Mon­e­tary Fund (IMF) that the G20 - the club of lead­ing de­vel­oped and emerg­ing na­tions - had failed to de­liver on prom­ises to kick­start growth in the wake of the global fi­nan­cial cri­sis.

In a re­port re­leased Wed­nes­day, the IMF said that just un­der half of the growth-fo­cused struc­tural re­forms G20 coun­tries had promised in 2014 to in­tro­duce had been fully im­ple­mented. At the time the re­forms were agreed, the goal was to raise po­ten­tial G20 gross do­mes­tic prod­uct by 2.1 per­cent by 2018. At the cur­rent rate, the boost to growth will be just 0.8 per­cent, the IMF said. Sev­eral large coun­tries in the group had man­aged only "below-av­er­age im­ple­men­ta­tion," ac­cord­ing to the IMF re­port, and most re­forms said to be in progress were sub­ject to a num­ber of im­ple­men­ta­tion risks.

In Jan­uary, the IMF cut its fore­cast for 2016 global eco­nomic growth to 3.4 per­cent from 3.6 per­cent, and has warned that an­other down­grade was likely in April. The IMF said on Wed­nes­day that it wanted the G20 to come up with a co­or­di­nated stim­u­lus pro­gram to sup­port the econ­omy.

But de­spite the IMF's push for ac­tion at the Shang­hai meet­ing, some pol­i­cy­mak­ers cau­tioned against such ex­pec­ta­tions.

Ger­man Fi­nance Min­is­ter Wolf­gang Schaeu­ble told the meet­ing on Fri­day that mon­e­tary and fis­cal pol­icy in Europe had been ex­hausted. Schaeu­ble did say, how­ever, that it was nec­es­sary to con­tinue with fi­nan­cial regulation, im­ple­ment struc­tural ref-Agen­ciesorms, and to make mar­kets less volatile.

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