WASHINGTON – For the first time in several years, the annual G-20 summit won’t be dominated by the eurozone’s debt troubles. But that may be little comfort to world leaders gathering this week in St. Petersburg, Russia.
In addition to sharp differences over the conflict in Syria, which is certain to hang over the meetings today and Friday, President Barack Obama and other heads of the so-called Group of 20 major economies have a new economic threat on their hands.
After financial fires were contained in the U.S. and then Europe, things now are heating up in the emerging economies.
India, Turkey, Brazil and South Africa are among the member nations whose currencies have tumbled as investors have pulled back from emerging markets in recent months.
The catalyst has been the expected cutback in Federal Reserve stimulus, which is marking an impending end not only of the cheap cash and ultra-low interest rates for Americans, but a new era for developing countries that lived high off the hog on the Fed’s easy-money policies after the financial crisis.
The capital flow out of emerging markets reflects the shifting global landscape: Growth prospects in the U.S. and other advanced nations have improved while those of up-and-coming economies, including China, have weakened somewhat.
“The emerging markets (are) largely viewing monetary policy in advanced economies as causing problems for them,” said Eswar Prasad, a senior fellow at the Brookings Institution, “and the advanced economies are basically taking the position that the emerging markets are chronic complainers.”
Obama’s priority, officials said, will be to keep pressing the G-20 to strive for a rebalancing of global demand. He initiated that effort at the Pittsburgh summit in 2009 so that countries such as the U.S. save more while big trade-surplus nations such as China and Germany boost domestic consumption.
Some progress has been made since then, but “there’s still weak and uncertain and uneven growth across the world, and there’s still a lot of work for this group to do to fulfill its lodestar mission of strong, sustainable and balanced growth,” said Matthew Goodman, former international economics director on Obama’s National Security Council and now at the Center for Strategic and International Studies.
Any complacency that may have set in with the easing of the eurozone crisis, he said, was now likely to be broken by what’s happening in the emerging nations – grievances that will be voiced around the G-20 table.
Tumbling currencies of some of these countries have sparked fears about their ability to pay off their debts as well as the threat of higher inflation. Some blame the financial turmoil on Fed policies and those of other central banks, but others see them as more home-grown weaknesses.
“I’m sure the U.S. and other advanced countries are worried about that volatility as well,” Goodman said, “but I would say they have a very different analysis of the sources and solutions to that. So I think you’re still going to have a difference of views in the room.”