World leaders of the Group of 20 this week concluded a two-day summit in Indonesia at a time when nearly all member nations are battling sky-high inflation rates.
While it stayed steady in Canada in October compared to the previous month, inflation remains stubbornly high across many G20 nations and is yet to fall to pre-pandemic levels. Through a declaration, the G20 economies agreed to pace interest rates to avoid any “cross-country spillovers.”
So far, Argentina tops G20 economies with a staggering inflation rate of 88 per cent in October, surpassing Turkiye’s at 85.5 per cent.
Amongst the advanced G20 economies, the U.K. faces the second-highest inflation of 11.1 per cent, after Italy recorded 12.8 per cent in October 2022.
Canada’s current inflation rate was 6.9 per cent in October, matching the 6.9 per cent recorded in September.
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So far, the high inflation rates have led to food insecurity, and coupled with Russia’s invasion of Ukraine, and persistent pandemic effects, it has become “increasingly evident” that there is a slowdown in global economic growth, according to the International Monetary Fund (IMF) experts tracking the progress of the Group of Twenty (G20) economies.
“Despite growing evidence of a global slowdown, policymakers should continue to prioritize containing inflation, which is contributing to a cost-of-living crisis,” Tryggvi Gudmundsson, an economist in IMF’s Research Department, wrote in an IMF blog. The most vulnerable groups and low-income countries, he said, are likely to be hit the hardest, and recent G20 indicators confirm that “the outlook is gloomier.”
“We are seeing a reversal of all we had been fighting for: bringing poverty down, bringing hunger down,” said Kristalina Georgieva, the IMF’s managing director at the G20 Leaders’ Summit on Nov. 15. “Now we have 345 million people that are suffering from a food crisis.” In a separate report by The World Bank released on Monday, food insecurity was a huge concern, with domestic food price inflation remaining high in almost all low-and middle-income countries and high-income countries.
Composed of some of the world’s leading and largest economies including the European Union (EU), the G20 accounts for 80 per cent of global economic output and two-thirds of the world population. Leading G7 economies such as the U.S., U.K., Germany, and Canada are all a part of the G20. But unlike the G7, the Group of 20 also includes some of the largest emerging markets like India, China, and Brazil.
Impacts of war in Ukraine
The impact of the war in Ukraine dominated the talks at the G20 summit, the first since Russia invaded Ukraine this year.
“Most members strongly condemned the war in Ukraine and stressed it is causing immense human suffering and exacerbating existing fragilities in the global economy - constraining growth, increasing inflation, disrupting supply chains, heightening energy and food insecurity, and elevating financial stability risks," the leaders' declaration said.
Canada had been among the most forceful in urging G20 nations to condemn Russia’s war on Ukraine which has contributed to worsening inflation. The IMF’s G20 report pointed out that the ongoing war has not only led to a humanitarian crisis but has also damaged the labour market recoveries in several emerging markets of Indonesia and South Africa. Associated sanctions have further contributed to supply disruptions, rising food insecurity, and energy concerns, especially across Europe.
Economic activity across G20 advanced economies has weakened
With stubborn inflation rates, IMF’s World Economic Outlook recently downgraded its growth outlook for all the G20 nations, except for China.
Canada’s economy is forecasted to grow 3.3 per cent this year, only to slow to 1.5 per cent in 2023. According to the Bank of Canada’s monetary policy report, GDP growth is projected to slow to between 0 per cent and 0.5 per cent through the end of 2022 and the first half of 2023.
Overall growth has been downgraded for advanced G20 nations, from 2.1 per cent this year to 0.9 per cent in 2023. In comparison, data showed that emerging G20 economies were expected to display relatively more resilience with growth projected to be 3.8 per cent in 2023 from 3.7 per cent in 2022.
Monetary policy across G20 is expected to tighten further
Some of the largest tightening moves in decades were witnessed in the advanced G20 economies of Canada, the U.K., and the U.S.
The Bank of Canada raised its interest rate to 3.75 per cent from 3.25 per cent, while predicting that the country could see a potential recession in the first half of 2023.
The U.S. Federal Reserve has been most aggressive with its interest rates, lifting interest rates to a level not seen since before the Global Financial Crisis. In January 2022, its policy rate ranged between zero and 0.25 per cent, but the most recent interest rate in November ranges between 3.75 and 4 per cent. In July, the European Central Bank (ECB) started hiking rates for the first time since 2011 and has so far raised its key interest rates by a total of 200 basis points.
IMF's survey based measuresWith the notable exceptions of China and Japan, central banks across all G20 economies aggressively increased interest rates. Some emerging market economies of Argentina, Brazil, and Mexico tightened their monetary policies earlier than G20 advanced economies.
Strong, sustainable, balanced, and inclusive recovery
“A world divided would lose at least 1.5 percent of GDP annually,” said Georgieva. “And the cost would be much higher—2 times higher or more-—for open economies, those that depend on international cooperation.”
The report warned that global fragmentation pressures could likely destroy any gains from decades of increasing globalization but collective efforts by G20 could help meet the challenges the world faces.
“The richest economies must stay committed to continued support for the poorest ones,” the report said.
