As the leaders of the 20 most powerful nations gather in the Mediterranean coastal city of Antalya in November, their agenda will be packed with numerous challenges all of which need urgent solution.
The global situation over the last few years has meant that each year seems to be worse than the preceding one, with hopes that the future will be brighter. And when the leaders of G20 nations gather for their annual jamboree, their task of governing an increasingly clamorous world with several challenges all at once, is all the more important than any other issue at hand.
If the meetings in 2008-2012 had been dominated by concerns over the worst economic crisis that the world had experienced ever since the Great Depression of the early 20th century, the meetings since then have seen their attention torn between economy and a rising sense of global insecurity, especially in view of the alarming rise of Islamic extremist group, the Islamic Caliphate, which has sworn to create a sovereign Islamic Caliphate over a large swathe of land stretching from South Asia to Turkey.
As they come together for the meeting in 2015, they have to discuss not just economy, with a new Chinese twist in its tail, and security, with the new ground realities in Syria, Yemen, Africa etc, but also the flood of immigrants which has been hitting the European Union for nearly a year, making all other crises seem petty and not urgent at all. The G20 leaders would also find the global climate change issues figuring high on the agenda for their meeting this November.
Figuring it out
The global economy has been enveloped by uncertainity ever since the financial services firm Lehman Brothers collapsed with a flourish in 2008. Holding it back initially were Europe and United States but since early 2015, it is China that is giving it the jitters.
In late September, the global stock markets plunged in tandem, with losses ranging from 2-10 pc as the latest figures from China showed that the second largest economy in the world was set for a long period of slower growth and hence further corrections were in store for the country’s stock markets, which have already lost more than 50 pc in their value over the last 12 months.
Just a few days ago, in early October, the International Monetary Fund (IMF) released a revised forecast for the global economy, projecting a 3.1 pc growth, 0.2 pc below the forecast made in July. The IMF says that the major global economies were again out of step, while some of the developed nations were set to grow at a faster pace, albiet marginally, growth in some of the key developing nations was projected to slow down again, for the fifth consecutive year.
“In an environment of declining commodity prices, reduced capital flows to emerging markets and pressure on their currencies, and increasing financial market volatility, downside risks to the outlook have risen, particularly for emerging market and developing economies,” the IMF said.
The China story seems to have begun unfolding in early 2013, registering its first significant drop in GDP growth numbers below the two-digit figures, in part due to the protracted recession and near zero growth in its principal markets – the United States and the European Union.
At this time, the first signs of a severe slowdown in China were evident and the global commodities markets began to cool off significantly, hurting the economies like Australia, Brazil, South Africa and several central Asian and African nations, whose economies had blossomed almost exclusively on Chinese growth.
A study found that nearly 30 pc of Australian exports were destined to China and mainly included minerals like iron, coal, copper, nickel and agricultural products. Other economies in Asia Pacific like Japan and South Korea, too, have been hurt significantly as China accounts for 20 pc of all Japanese exports and 29 pc of South Korea’s exports.
But these fade in comparisons to countries such as Mauritania, Turkmenistan, Sierra Leone, Gambia, Mongolia and Mali, for whom, China accounts for nearly 50 pc of their exports.
But the real jolts from the Chinese slow down were not felt across the world until late 2014 when some of the main trading partners of China felt the pinch of low demand emanating from China. It was in 2015 that the Chinese shocks hit the global economy. The biggest shock came with the devaluation of Chinese currency by the central bank on two successive days in August. The sudden move caught the global currency and stock markets by a surprise and sent them plunging, wiping billions of dollars in net worth.
When the financial services crisis hit the global economy, few could understand the depth of the crisis at hand or even, very clearly the reasons that had led to the situation. But what was clear from the day one was the world would not be the same again and that a few things would change or have to changed for good.
The central bankers, normally the wise men of the turbulent times, were themselves at a loss on how to revive the economy, which had entered a terrible, downward spiral in quite a few countries and hundreds of corporations, previously seen as invincible, stood enfeebled and required hundreds of billions of dollars in urgent rescue packages.
At this key juncture, the American and the European central bankers took radically different steps to set the economy right. While the Americans threw nearly a trillion dollars at the crisis, the European Central Bank launched an unprecedented austerity drive.
The American gamble paid off as within four years, the US economy had begun to show signs of recovery, even as the EU was still in the throes of the crisis, with nations like Greece, Spain, Portugal, Iceland and Ireland, teetering on the verge of a bankruptcy. The crisis had hit all the EU economies very hard, but the vulnerable nations saw their GDP collapse and a sharp jump in the unemployment rates as well, which were nearly 40 pc in some sections of the population, mainly the youth.
Even the United Kingdom, whose economy too had taken a severe beating, began a smart recovery in 2013 and the country posted some handsome growth in all key parameters.
By early 2014, the US and the UK economies were clearly steering ahead, widening the gap with the Europeans, who remained rather clueless on how to revive their economy. It was only in the third and fourth quarter that the EU economies began showing signs of modest growth, from 0-1 pc for most and a luxurious 2.5 pc for Germany, which had been the first major EU economy to pull itself up in 2012 itself.
And then when the worst seemed to be over, the Chinese stepped in and made their moves which created even greater confusion and nervousness in the market. Most market analysts now expect signs of global recovery not before 2017 and that too with a precondition that the Chinese economy does not deteriorate any more. The World Bank estimates that a decline of 1 pc in Chinese GDP growth leads to about 0.5 pc decline in global economic growth each year.
The IMF also says that the Chinese authorities face difficult trade-offs in their objectives of achieving a transition to more consumption-driven growth without activity slowing too much, while also reducing financial vulnerabilities and implementing reforms to strengthen the role of market forces in the economy.
Between a rock and a hard place
Even as the globe continues to battle financial insecurity, another, more serious and definitely lifethreatening insecurity seems to have taken the world by a storm since 2013. The sharp and surprising mushrooming of Islamic State (IS) as a serious challenge to several sovereign states across the Middle East and Africa has alarmed national governments all over the globe, more so because IS has been able to lure youth from countries as far as Australia and America to join their jihad (religious duty of Muslims), which has claimed thousands of lives within the last two years.
What is most worrying for the governments is the link between the economic crisis and the rise in the fortunes of the IS, which has been able to capitalise on the rising unemployment and desperation amongst large numbers of youth in various countries. In most economies hit by the crisis, it is the youth that has bore the brunt, with unemployment rates as high as 50 pc among the population of 15-30 years of age in many EU nations. With little prospects of finding suitable employment or stability, many youngsters do drift towards extremism and this is the factor that the IS managers have been able to exploit to the hilt.
Thus, the challenge for the governments in tackling the threat posed by IS is double fold. Not only do they have to defeat the armies of IS in the battlefields, which themselves are rather flux and ill-defined, but they also need to ensure that they can defeat the IS propaganda in the virtual battlefield which extends over the social media universe in key countries. Victory in neither battle will be an easy one for the governments, which would need to ensure that they handle this challenge with just the right mix of diplomacy, firm hand and conviction.
Another by-effect of the instability and warfare in large parts of Middle East and Africa is the flood of migrants that has hit Europe since the beginning of the year. The war in Syria alone has displaced nearly 10 million Syrians, half of whom have been forced to seek shelter in various neighbouring countries, while nearly a million are expected to head to Europe, seeking safety, stability and a future for themselves or at least their children.
Most of the refugees were obliged to use the human traffickers, who put them on rickety boats from north Africa to nearest EU outposts, mainly in Greece and Italy. Unfortunately and tragically, several of these boats failed to make it across the Mediterreanean and breakfast television news in European homes began to beam almost daily feeds of dozens, often hundreds of migrants drowning in the Sea as their boats capsized.
Though it ought to have been prepared to receive large number of refugees, the EU was caught completely offguard about the rush of immgrants, leading to a bitter and public battle between various leaders of the EU, who had extremely divergent stands on what to do with the refugees, whose numbers are expected to cross the million mark shortly.
Finally, German leader Angela Merkel was able to show the way when she announced that Germany would accept nearly 800,000 Syrian refugees, shaming other European leaders into accepting refugees in their own countries as well. However, the German spirit of generosity was clearly not visible in other nations, which were nearly obliged to accommodate refugees numbering from a few hundreds to several thousands.
The issue of migration is set to dominate the agenda as several critical EU nations like France head to the polls. Already, France has seen the extreme right wing, Front National, reach record levels of popularity, putting it ahead of the right wing opposition party as well as the ruling Socialists. In the upcoming regional elections, the FN is set to score some unprecedented wins. The FN is not the only extreme right wing party to be rising, the story is set to be repeated in various other EU nations and by mid-2016, one could see the emergence of extreme right wing parties in many EU nations.
There will not be any quick fixes available to the leaders, especially as they themselves have sharp differences on some of these fundamental issues, which means that the best outcome possible would be for the G20 nations to agree to disagree.