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Global Leaders Cling To Unlikely Growth Target

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What's going on?

Leaders from the G20 – a group of the world’s 20 largest economies – met in Turkey. While the terrorist attacks in Paris deservedly dominated the news coverage, the G-20 reiterated its pledge to raise its economic growth by an extra 2% by 2018 above what’s expected – a goal that appears increasingly unrealistic.

What does this mean?

Two years ago the G-20 launched a $2 trillion plan to boost the growth rate of its member countries by 2%. Unfortunately it was to no avail as global growth has declined since then.   China and emerging markets (EM) had led a lot of the growth in the aftermath of the 2008 financial crisis. But as we have seen, Chinese growth has been slowing significantly and the slowdown has spread to other EM economies. The low interest rates and government bond buying (called “quantitative easing”) that has spurred some growth in developed economies has either ended (as in the US and UK) or appears to be becoming less effective (as in Europe and Japan).

Why should I care?

  1. The bigger picture: New growth tactics probably need to be explored. Many have made the point that governments can no longer rely on central bank moves like government bond buying to spur growth and instead have to find new ways to spur growth.
  2. For stocks: Stocks will (probably) need support from the economy going forward. Stocks have been buoyed in recent years by ultra-low interest rates, but as that impact (arguably) begins to wane, so might the strong returns seen in recent years. Many analysts are expecting, on average, lower investment returns unless overall economic growth improves.
Originally posted as part of the Finimize daily email.

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