G20 ‘ever more im­por­tant’ for global eco­nomic gov­er­nance, says QNB

Gulf Times Business - - BUSINESS -

As large emerg­ing mar­ket (EM) economies catch up and con­tinue to grow faster than ma­jor ad­vanced economies, the G20 dy­nam­ics evolve, mak­ing it an ever more im­por­tant ar­range­ment for global eco­nomic gov­er­nance, QNB has said in an eco­nomic com­men­tary. The re­cent de­tente in bi­lat­eral trade be­tween the US and China, agreed last week dur­ing the G20 Sum­mit in Buenos Aires, is just the lat­est ex­pres­sion of both the new dy­nam­ics and over­all im­por­tance of the fo­rum.

“The G20 has in­deed gone a long way from its ori­gins in the late 1990s and is set to be­come even more cen­tral as global eco­nomic con­ver­gence takes place. Our anal­y­sis fo­cuses on the un­der­ly­ing eco­nomic fac­tors be­hind the G20 grow­ing in­flu­ence,” QNB said.

The G20 is an in­ter­na­tional fo­rum for the gov­ern­ments and cen­tral bank gov­er­nors of some of the largest economies in the world, deemed of sys­temic sig­nif­i­cance for the in­ter­na­tional fi­nan­cial sys­tem. Mem­ber­ship in­cludes 19 coun­tries and one bloc, the Euro­pean Union, rep­re­sented by the Euro­pean Com­mis­sion and the Euro­pean Cen­tral Bank. Mem­ber coun­tries are com­prised of the tra­di­tional G7 coun­tries (Canada, France, Ger­many, Italy, Ja­pan, the UK, and the US), Brics coun­tries (Brazil, Rus­sia, In­dia, China, and South Africa), MIST coun­tries (Mex­ico, In­done­sia, South Korea, and Tur­key), Ar­gentina, Aus­tralia as well as Saudi Ara­bia.

Taken to­gether, the G20 makes up more than 90% of the world econ­omy. While this num­ber has been sta­ble since the of­fi­cial cre­ation of the group in 1999, the eco­nomic clout of dif­fer­ent coun­tries within the group has changed dra­mat­i­cally. In­deed, the strength of the G-7 has dwin­dled, while large EM economies, led by the Brics and MIST coun­tries, have in­creased sub­stan­tially. Cu­ri­ously, the G20 was ini­tially con­ceived by the G7 coun­tries to tackle in­ter­na­tional fi­nan­cial stability is­sues as­so­ci­ated with the spillover of EM bal­ance of pay­ment and debt cri­sis in the late 1990s. Back when the G20 was cre­ated, EM economies were still seen as the most im­por­tant sources of in­ter­na­tional fi­nan­cial cri­sis. How­ever, per­cep­tions changed sig­nif­i­cantly af­ter the Great Fi­nan­cial Cri­sis (GFC) of 2007-09, when the G20 was cho­sen as the pre­ferred fo­rum for a co- or­di­nated re­sponse to the cri­sis. The sta­tus of the G20 has then changed and ac­tiv­i­ties started to in­clude a sum­mit of heads of state or gov­ern­ment.

The 2009 G20 Lon­don Sum­mit was a wa­ter­shed mo­ment for global eco­nomic co- or­di­na­tion, as mem­ber states pledged to mo­bilise $1.1tn to sup­port trade fi­nance and in­ter­na­tional fi­nan­cial or­gan­i­sa­tions. Since then, the G20 evolved to be­come the pre­mier fo­rum for dis­cussing, plan­ning and mon­i­tor­ing the global econ­omy. Im­por­tantly, EM members of the G20 started to be seen as equal part­ners or part of the so­lu­tion to the cri­sis orig­i­nated in the ad­vanced economies rather than sources of fi­nan­cial prob­lems. The change in the sta­tus of the EM economies within the G20 was and still is mostly as­so­ci­ated with their eco­nomic per­for­mance and grow­ing in­flu­ence in both global ac­tiv­ity and fi­nance. While the G7 coun­tries rep­re­sented 73% of the nom­i­nal GDP of the G20 (in dol­lar terms) when the fo­rum was cre­ated, this num­ber has shrunk to 60% dur­ing the peak of the GFC and now hov­ers around 50%.

In con­trast, EM economies in­creased their GDP share within the G20 from the ini­tial 15% to 25% in the peak of the GFC to the cur­rent 34%. Large Brics and MIST coun­tries spear­headed the way.

China, In­dia, In­done­sia, Tur­key, South Korea and Rus­sia were the G20 growth cham­pi­ons over this cen­tury. Un­der their lead­er­ship, the Brics and MIST were able to ex­pand re­spec­tively 8.6 and 2.4 times faster in nom­i­nal terms (dol­lar) than G7 coun­tries.

The Brics cur­rently rep­re­sents around 27% of the G20 economies, while the MIST rep­re­sents nearly 5%.

Over the next five years, the In­ter­na­tional Mone­tary Fund es­ti­mates that the Brics and MIST are go­ing to con­tinue to grow faster than the G7 economies. From 2019 to 2023, the Brics and MIST are ex­pected to grow re­spec­tively 2.2 and 1.8 times faster than the G7 economies, rep­re­sent­ing 31% and 6% of the G20 USD nom­i­nal GDP, re­spec­tively.

In short, QNB noted global eco­nomic con­ver­gence is ex­pected to con­tinue and the im­por­tance of the G20 as a fo­rum for gov­er­nance is set to in­crease ac­cord­ingly, as key EM economies be­come sys­tem­i­cally sig­nif­i­cant for fi­nan­cial stability and global growth.

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