A group of 20 leaders pledged over the weekend to do everything they can to boost the global recovery. Japan’s descent into a recession is the latest reminder of how elusive that goal is proving to be.
Less than 24 hours after heads of state gathering in Brisbane, Australia, agreed to take measures that would boost their economies by a collective $2 trillion by 2018, the Cabinet Office delivered news in Tokyo that Japan’s gross domestic product unexpectedly shrank an annualized 1.6% in the three months through September, the second straight contraction.
Disappointment is becoming routine for the global economy, with the International Monetary Fund last month cutting its 2014 world-growth outlook for the sixth time since January 2013. Weaker expansion stands to add pressure on policy makers including European Central Bank President Mario Draghi who are already pushing the limits of monetary stimulus and governments that are reluctant to increase spending.
“People are misreading the strength of these economies,” said Steven Ricchiuto, chief economist for Mizuho Securities USA Inc. in New York. “Monetary policy is not capable of dealing with a world of excess supply. You need proper fiscal policies and nowhere in the world are we applying proper fiscal policies.”
The IMF’s estimate last month for 3.3% global expansion this year is down from a 3.6% forecast given a year earlier and 4.1% two years ago. The institution, whose next World Economic Outlook update comes in January, previously made similar cuts to forecasts for 2012 and 2013 growth as incoming data trailed expectations.
The fund said in a report last week that major advanced economies, especially the euro area and Japan, “could face an extended period of low growth reflecting persistently weak private demand -- especially investment -- that could turn into stagnation.”
The Japanese contraction prompted JPMorgan Chase & Co. to cut its estimate of third-quarter global growth to 2.6% from 2.8%. “The disappointments have been fairly broadly based,” said Joseph Lupton, JPMorgan senior global economist in New York.
The G-20 plan includes almost 1,000 individual policy changes designed to lift growth, and the nations said they would hold each other to account to ensure they are implemented. While IMF Managing Director Christine Lagarde said she “strongly” welcomed the effort, London-based research firm Capital Economics Ltd. said the proposal “will no doubt join the long list of forgotten” action plans from previous G-20 summits.
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