Home front welcomes 'fine words'

Local economists have welcomed the tone of the G20 communique, saying it addresses many of the threats to the global economy, but it remains to be seen whether the words will translate into the required action.

Stockmarkets around the world rose after the conclusion of the summit. In New Zealand the NZX-50 closed up 1.1 per cent. Australia's ASX-200 climbed 1.5 per cent.

Economist and academic Roger Bowden noted that the G20's package appeared to contain no additional fiscal stimulus on top of what had previously been announced, "so that itself is not going to help dig us out of the current hole".

"But it's all about prospects for the future and in a sense it should help because if you can establish a reasonable path for the future, then that will increase confidence and confidence is of course what economic life is all about."

Some of the more significant content concerned the path of future regulation of the world's financial system.

"A huge raft of issues have come up there as a result of the sub-prime crisis including the role of hedge funds. The more general issue is how they cope with international financial networks."

Bowden said regulators had missed a chance to tackle deficiencies in this regard exposed by the collapse of hedge fund Long Term Capital Management in the late 1990s. "They should have woken up and done something at that point and didn't."

But in tackling these issues now, the development of "a magnificently huge bureaucracy" was likely.

AXA Global Investors chief economist Bevan Graham said in 20 years as an economist this was one of the few times he had been really interested to see a G20 communique.

"Your expectations are usually so low, but because of where the world and its financial system is at at the moment, expectations around it were quite high.

"When I then looked at it, I was pleased with the fact there was actually some action around the extra financing, especially into the IMF, and around trade finance and a bit more for the multilateral development banks. These are all good measures, especially for emerging and developing markets.

"I give it high marks for dealing with the tactical issues of the day but I think it still fell short in terms of recognising what the long-term challenges are for the global economy."

Westpac chief economist Brendan O'Donovan said he could not have expected more from the G20.

"They are demonstrating an impressive degree of international co-ordination across a broad range of issues with a strong commitment to do what's required.

"It's a fine set of words and objectives, but we'll await the execution of it."

From New Zealand's perspective, however, "it would have been nice to see some roll-back of protectionist measures implemented since the last G20 communique".

Mark Brighouse of investment manager Brook Asset Management said it was important to understand that signs of improving investment confidence emerging at present were not purely the result of the barely concluded conference.

"In fact it's distracted a bit from some pretty impressive improvements in some of the other data. Stocks were already strong before G20, we'd seen a very impressive rally during March, and this week we saw indicators like UK house prices rise for the first time since 2007.

Chinese manufacturing rose, US factory orders rose, last night the European central bank cut rates again, so all that ... is contributing as well to improving investor confidence.

"It certainly looks like an end to the ... increasingly pessimistic news."

One of the more impressive aspects was the move towards global co-operation on banking regulation. "That should reassure the public that we're not going to see a new wave of collapses of banks in some new sector."

AROUND THE GLOBE
* NZX-50 +1.1 per cent
* ASX-200+1.5 per cent
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