At G8, an Odd Mix of Optimism and Concern

According to the G8 statement called the “Communiqué on Global Economy Working Session”:

Promoting growth and jobs is our top priority. We agreed to nurture the global recovery by supporting demand, securing our public finances and exploiting all sources of growth. The fight against unemployment, particularly long-term and youth unemployment remains critical in our domestic and collective agendas.

Global economic prospects remain weak, though downside risks have reduced thanks in part to significant policy actions taken in the US, euro area and Japan, and to the resilience of major developing and emerging market economies. Most financial markets have seen marked gains as a result. However, this optimism is yet to be translated fully into broader improvements in economic activity and employment in most advanced economies. In fact, prospects for growth in some regions have weakened since the Camp David summit. While countries have taken steps to avoid the worst of the tail risks that faced the world economy in 2012, vulnerabilities remain in 2013, highlighting the need for countries to press ahead with the necessary reforms to restore sustainable growth and jobs.

In addition, the group comments that Europe may be on the mend, the United States has shown great economic and policy strides and Japan has made the best of its situation by activities taken by its central bank and leaders.

The trouble with all the suggestions about what most of the largest nations in the world can do about growth is that these suggestions are unrealistic. Few governments have the means to fight unemployment without substantial stimulus. This is certainly true of France, Italy and the United Kingdom, which face growing budget deficits, troubling levels of debt and plans for government austerity. Russia continues to be in a state of disarray, particularly economically. Its central government has done nothing to reverse this, even if it could. No matter what the Bank of Japan has done, Japan’s stagnant economy has shown no sign of making a multiyear recovery. That leaves Canada, which is too small to matter, the United States and Germany. Political forces in America continue to lean toward lower government spending, which in turn means no dollars to decrease unemployment and gross domestic product. The Federal Reserve continues to ease on worry that a recovery barely has taken root.

The G8 comments on the global economy do not tell much. Whatever beliefs the leaders have about the future are not buttressed by any specific agreements about the means to rekindle growth.