Each week, the Economic Research Department of BNP Paribas reports on economic news.
The world economy is cooling so the heat is on about what should be done. The closing statement of the G20 meeting in Shanghai has brought soothing words (“recent market volatility does not reflect the underlying fundamentals”, which is a fair point) and a number of welcome commitments. There is a list of ‘don’ts’: no to competitive devaluation and to protectionism, no to an exclusive use of monetary policy to produce balanced growth. The list of ‘do’s’ is, as expected, longer: using a three-pronged approach of monetary, fiscal and structural policy; clear communication to reduce policy uncertainty and to minimize negative spillovers; a commitment to enhance the reform agenda. This last point echoes recommendations made by the IMF, the OECD as well as Mario Draghi who, since he became president of the ECB, has used every press conference which follows a governing council meeting, to hit the nail of the need for structural reform. The importance of the effort is clear: reforms will boost potential GDP growth in the longer run and can even have a positive impact on confidence and spending in the short run, especially if accompanied by an appropriate fiscal policy and an expansionary monetary policy. The mountain to climb though is steep and despite the unanimously shared ambition, the OECD’s recently released Going for Growth report reminds us that the pace of reform has slowed.
William De Vijlder
