G20 Update

Published on 27th April 2009

When the G20 met earlier this month, they devised a six stage strategy that will hopefully inject some life back in to the World's economy.

The six pledges made by the World leaders are designed to try and jump start the economy and get us out of the recession, but it remains to be seen whether they will have the desired effect.

A new start

The first pledge made by the G20 involves a $5trillion fiscal package funded by tax cuts and public spending, aimed at restoring confidence, growth and jobs. Sceptics have said that there was a lack of any new money however, the fact that major World leaders have collectively said they are implementing this plan may have a psychological effect on the public and this should in turn help to fuel confidence and growth.

The G20 also plan to repair the financial system by removing toxic assets from the banks' balance sheets. However, this has been left to each individual country to arrange for their own banks rather than one collective effort which may lead to some countries being left behind. Britain's plan seems to be working and confidence in the banks is slowly being restored.

A World united

The third pledge made by the World leaders is to work together to try and coordinate financial regulation across countries in order to avoid the World economy being put at risk in the future. A financial stability board is due to be put in place to oversee the Worlds financial systems and try to limit the availability of tax havens however it remains to be seen how far this will go. It is too early to tell what impact this will have on the economy and on our finances as individuals.

The fourth step in their revival plan is to reform international financial institutions such as the International Monetary Fund (IMF), injecting $850billion in the hope that it will protect small or developing countries from any further economic trouble. The World leaders plan to shake up the IMF to make borrowing easier and also to allow countries such as China a bigger say in how the institution is run.

Think Global

The fifth pledge encourages global trade and involves putting $250billion into global exports and imports. In any recession there is a tendency for countries to encourage consumers to buy from their own countries and avoid exporting money to other economies. However, this can have a disastrous effect on the World economy and as such the G20 is pledging to avoid protectionism and encourage global trade.

The World leaders are also focussing on 'green' investment and are putting forward $50billion to help poor states such as Africa to survive the World economic crisis and rebuild them for the future.

The effect on the markets

The stimulus packages are significant but the most concrete thing to come out of the London summit appears to have been the show of unity. Equity markets have continued a very strong run and it increasingly appears that investors are piling back into the markets to capitalise on what could very well be a significant rally. Markets tend to be forward looking and so the ongoing spate of negative historic data has been shrugged off.

Further easing of monetary policy is likely to be inflationary and again equity markets are considered a good way to cushion the blow. Asset prices will also be revised upwards to compensate as the spending power of cash in your pocket is eroded.

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