Infrastructure investment drive at G20
October 11, 2014
On the sidelines of the annual meetings for the International Monetary Fund and the World Bank, the Group of 20 (G20) major economies agreed late on Friday that boosting investment in infrastructure was "critical" for hopes to spur on the world economy.
Australian Treasurer Joe Hockey said that over several years, the countries would boost the "quality and quantity of infrastructure across the G20 and beyond," also saying that it was the ideal time to court private investment, considering persistent rock-bottom interest rates.
The IMF had earlier predicted global economic growth of just 3.5 percent for 2014-2015, warning that the economy could become mired in a cycle of "mediocre" growth and suggesting infrastructure investments as a solution.
"Investment in infrastructure can be a good way to support growth in the short term by putting people back to work, by launching major construction efforts or maintenance jobs, but can also impact on the supply side in the medium term by facilitating and accelerating the creation of value down the road," IMF managing director Christine Lagarde said.
On Thursday, the World Bank had launched a new effort to link investors with infrastructure projects in emerging markets and developing economies.
Rift over German thrift
The meeting coincided with a muted mood on global financial markets. The benchmark European Euro Stoxx 50 index fell 1.4 percent on Friday for a weekly loss of 3.7 percent, Wall Street's S&P 500 shed 2.1 percent on Friday and 3.1 percent for the week, while Germany's DAX index hit a one-year low during trading.
"The European economy, especially the eurozone, is facing stronger headwinds than we had expected during our meetings," said Poul Thomsen, head of the IMF's European department. "Domestic demand is recovering too slowly, and external demand has also disappointed."
US Treasury Secretary Jacob Lew appeared, without naming Germany by name, to criticize Berlin's large export surplus and comparatively thrifty spending.
"European leaders should focus on recalibrating policies to address persistent demand weakness," Lew said, adding that "countries with external surpluses and fiscal flexibility" should do more to boost growth. This followed an IMF report saying that Germany "can afford urgently needed public investments in infrastructure," without breaching the EU's new rules on annual borrowing.
German Finance Minister Wolfgang Schäuble batted back the suggestions, however, saying it would be "foolish" to throw away gains made stabilizing government borrowing, also saying infrastructure projects could only achieve so much. Some past public-private infrastructure projects in Germany - such as Berlin's new airport, or the renovation of the now privately-owned Nürburgring racetrack - have not run according to budget or schedule.
"I do not concern myself from dawn until dusk with making certain people in the world happy," Schäuble told reporters when asked about comments from Lagarde and European Central Bank chief Mario Draghi. "I hope that they are both also trying to satisfy me. Surely that's just as important," the conservative quipped.
France outlook downgraded by S&P
At the other end of the state debt spectrum, the ratings agency Standard and Poor's (S&P) on Friday downgraded its economic outlook for France.
Despite preserving France's AA credit rating, the third-highest available, S&P said the outlook for France was now "negative," suggesting that a downgrade could soon follow unless the situation improved. S&P said it now expects France's nominal GDP to grow at an average of 2 percent from 2014 to 2017, down from its previous estimate of 2.5 percent.
The agency also cut Finland's top-notch AAA credit rating, dropping the country one rung to AA+. Finland has been hit hard by the dispute between Ukraine and Russia and sanctions against Moscow; its neighbor to the east is a key trading partner.
This move means that only two eurozone countries - Germany and Luxembourg - still enjoy a top-rate credit rating from all three major agencies.
msh/tj (AFP, AP, dpa)