This weekend Australia takes the reins as chair of the Group of 20 economic meeting in Canberra. Now I know that a G20 meeting might seem like the last thing on your mind this weekend, and even those who are interested question whether anything substantial will come from the meeting.
That said, there are some interesting aspects of both this meeting and the economic prospects of the host country, Australia That nation’s treasurer warned that governments should not give in to “reform fatigue,” meaning that in recent years when economies were being battered about by crises, there was a sense of the need to make major changes in economic structures. Now that the world seems more stable there is little drive to do anything.
But reforms are still needed. The International Monetary Fund (IMF) put out a report ahead of the meeting that noted aggressive reforms could add $2.25 trillion to the global economy by 2018. Those reforms include correcting financial imbalances, reform of product and labor markets and investment in infrastructure spending.
Australia in particular has a vested interest in reinvigorating growth. The country reaped the benefits of China’s double-digit growth rates for years and its success was reflected in the Australian dollar exchange rate which appreciated 42% from 2001 to 2011. With growth moderating in China and staying relatively slow in the rest of the world, the Aussie dollar has come off 17% from its highs, but the damage in terms of continued outside investment into Australia is already done. International carmakers Toyota, General Motors and Ford have all recently announced that they are closing their car manufacturing facilities in Australia due to the high cost of production and a currency that makes them uncompetitive. The unemployment rate hit 6.0% last week for the first time in a decade, creating additional political problems for the government.
Monetary policies of the central bank are in somewhat of a pickle. The Reserve Bank of Australia (RBA) has eased off on interest rates to help support the economy, but inflation recently picked up, meaning that the RBA can’t ease rates too much.
My View: Australia has a good point. The real growth, as in the U.S. and elsewhere, comes from the private sector. It is common for governments to stop pushing on needed reforms when the pain is not so acute and the world has moved out of crisis stage. Reforms really should continue. I hope Australia can help push those through.
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