Between surging oil prices, food inflation and a credit crunch that’s depressed global growth, leaders from the Group of Eight (G-8) economic powers face the gravest combination of economic woes in at least a decade when they gather next week.
The outlook has darkened dramatically since last year’s summit in Germany, when leaders declared the global economy was in “good condition” and oil cost $70 a barrel — which seemed high at the time.
Since then, the US subprime mortgage crisis has erupted. Oil has doubled to above $140 and food prices have jumped, hurting the poor in particular and raising the threat of political instability.
“Things have changed for the worse across the board,” said Robert Hormats, vice-chairman at Goldman Sachs. Hormats argues that the economic problems now are more serious and widespread than during the Asian financial crisis of 1997-98, where the pain was largely limited to emerging markets.
“Now you have a financial disorder where the epicenter is the US,” he said. And fuel and food inflation “are serious matters that affect large numbers of people.” Host Japan had put global warming at the top of the summit’s agenda, but the dilemma of how to respond to accelerating inflation and slowing global economic growth could grab the spotlight.
Japanese prime minister Yasuo Fukuda said he hopes the meeting will “show some direction” in tackling oil and food prices but stressed it was only “one step” in a longer process. On oil, analysts are skeptical that the G-8 leaders — representing the US, Japan, Britain, France, Germany, Russia, Italy and Canada — will come up with much beyond urging major petroleum producers to boost output, reiterating the message of their finance ministers, who met last month in Osaka.
Foreshadowing possible disagreement among the leaders, the finance ministers were divided on where to assign blame for the run-up in oil prices. Germany, France and Italy held speculators accountable, while the US and Britain said the focus needed to be on boosting production capacity that has barely kept up with global demand.
“At what point will the G-8 realise we’re no longer the steering committee for the world economy?” said Lael Brainard, a former deputy national economic adviser in the Clinton administration who attended several summits in the 1990s and now is a director at the Brookings Institution, a Washington think tank.
Already, the G-8 has been reaching out. It plans meetings with African leaders on the summit’s first day, and later with leaders from China, India, Mexico, Brazil and South Africa — countries that someday might be a part of the Group of 13.
“These countries are critical to the solution of these problems,” said Brainard. “I believe it’s only a matter of time” until the club expands.
