Progress on a global economic rebalancing will be tough to achieve at the latest G20 meeting in Seoul, says TD Economics.

This is the group’s fifth summit since the fall of 2008 when the collapse of Lehman Brothers sent financial markets into a tail spin, TD notes. Since then, the global economy has traversed a recession, and entered recovery, leading to “a change in attitude” among G20 countries, TD says.

“Immediately after the financial crisis hit, there was a profound sense of urgency to deal with the universal problems that left all countries worse off. General agreement on policy action was relatively easy to attain, which facilitated coordinated, swift policy actions at a global scale,” it says.

However, as recovery emerged, and elevated fiscal deficits raised questions about fiscal sustainability in the advanced economies, “Opinion among G20 members started to diverge”, although countries did agree to reduce deficits over time. Now, as the global recovery continues, and national fortunes diverge further, “consensus on dealing with structural global issues has become more elusive”, TD observes.

TD suggests that discussions regarding currency valuations are likely to overshadow some positive developments such as progress on financial regulation reform, and the governance of the International Monetary Fund. “And, although reaching consensus on financial regulation was no small feat, the task of tackling global savings imbalances and currency misalignments is even more daunting,” TD says. “There will be no consensus on fully resolving this matter at the G20 meeting.”

“Altering the dynamics behind the global savings imbalances will be a slow multi-year or possibly even multi-decade process,” TD says. “This means that we can expect continued currency friction and political tensions to persist for some time yet.”

Moreover, TD says that it’s important that the leaders recommit themselves to resisting protectionism. “It is essential that this commitment is maintained and implemented, because the imposition of trade and capital barriers could undermine the global recovery,” TD concludes. “And, this is perhaps one of the key reasons why the G20 meetings are important. The forum provides the opportunity for open face-to-face discussions that help avoid problems or help to resolve them.”

IE