By: Mike Campbell
Ahead of the Pittsburgh meeting of the group of 20 strongest economies (G20) later this week, speculation has been raised that leaders will call for changes as to how the world’s economy should run. One proposal that may be presented would call for the Chinese to abandon their policy of supporting a low value for the Yuan. Many commentators believe that the value of the Yuan is artificially low and, in effect, acts as a trade subsidy by making Chinese export goods cheaper, giving them an unfair advantage.
The meeting will consider mechanisms to ensure a more “balanced” global economy. This may call for rich nations with vast debts (US and UK spring readily to mind) to adopt a more frugal policy saving more cash whilst frugal economies, such as the German and Chinese, loosen their belts and increase spending.
Another major topic will be to discuss the mechanisms to remove the many government sponsored support plans that have propped up financial institutions around the world during the current recession. Leaders will want to see “transparent and credible” methods put in place before the time comes for support to be removed. It seems most unlikely that G20 will conclude that the time has already come for this.
In Europe’s largest economy, Germany, their central bank is predicting that the recovery will be “muted”. The Bundesbank believes that the EU stimulus package will remain in place for some time to come and that its eventual withdrawal will trigger higher levels of unemployment and a decline in consumer spending. Bundesbank chief, Axel Webber, pointed out that the German economy would be starting from a low level in the aftermath of the global recession. Consequently, the eventual removal of stimulus measures would not damage the German recovery.
Will G20 Call For A Brave New World?
DailyForex.com