WASHINGTON — Something unfamiliar will be in the background as world leaders hold a summit in Russia starting Thursday: economic growth throughout the developed world.
And something will be missing: worry about a renewed financial crisis.
Leaders from 20 of the largest economies are more confident about their banking systems than at any other time since they began meeting five years ago. What’s more, the economies of the United States, Europe and Japan are finally growing simultaneously.
Yet fears are rising about emerging nations, which have helped drive the global economy for years: Growth is slowing, investor money is leaving and borrowing costs are rising, in part because of higher interest rates in the United States.
The result is a more divided world than the leaders faced at previous summits of the Group of 20 major economies — a disparity that could make any major breakthroughs at the summit elusive.
Issues beyond economic ones will surely seize part of the agenda. The threat of a U.S.-led military strike against Syria, in response to what the Obama administration calls a deadly chemical weapons attack, is certain to arise. Russian President Vladimir Putin, an ally of Syrian President Bashar Assad and the host of the G-20 summit, has asked President Barack Obama to reconsider any military action.
Some countries may also take the opportunity to complain about spying by the U.S. National Security Administration.
Europe’s financial crisis, and fears that the euro currency alliance might unravel, had brought focus to previous summits. The leaders first met in 2008 as the U.S. financial crisis was raging and infecting economies around the world. The United States, Europe and Japan are now economically sturdier.
“There is a stronger incentive to cooperate if you are on the brink of a crisis,” says Domenico Lombardi, an economist at the Center for International Governance Innovation in Canada. Without such a threat, “each country is looking after its own domestic affairs.”
After their first meetings, for example, the G-20 leaders embraced policies to try to rejuvenate the global economy. Last year, they agreed to boost the International Monetary Fund’s financial resources, which had been depleted by Europe’s crisis.
Now, “it’s becoming more of an environment of each country for themselves,” says Eswar Prasad, a former IMF official who teaches at Cornell University.
The problems engulfing emerging countries like India, Indonesia and Turkey illustrate a key challenge. The problems stem in part from expectations that the Federal Reserve will soon slow its monthly bond purchases. The bond purchases have been intended to keep U.S. borrowing rates ultra-low to stimulate growth.
Long-term U.S. rates have been rising in anticipation that the Fed will slow its bond buying. Those higher rates have, in turn, led investors to pull money from developing countries and invest it in U.S. assets. India’s currency, the rupee, Indonesia’s rupiah and Brazil’s real, among others, have plunged in response. The rupee sank to a record low against the dollar last week.
The Organization for Economic Cooperation and Development, a Paris-based research group, said in a report this week that even as growth in developed nations is picking up, slowdowns in emerging economies will likely restrain the global economy.
Yet the advanced economies aren’t likely to alter their rate policies in response to the turmoil in emerging economies. Those policies have been vital to the recoveries in the United States, Europe and Japan.
“This is not something that the G-20 can settle, because it touches at the heart of national policymaking,” Lombardi says.
At the same time, the leaders will likely address the developing countries’ concerns in their statement when the summit ends. Zhu Guangyao, a Chinese deputy finance minister, says the United States “must consider the spillover effect” of scaling back its bond-buying.
“Even if it’s just a plan or a thought, you must have more communication,” Zhu said late last month.
China isn’t as vulnerable to the Fed’s policies as other developing countries. It limits its currency’s ability to fluctuate. And it’s sealed off its financial system from global capital flows.
China’s economy grew 7.5 percent in the April-June quarter compared with the same quarter a year earlier, the slowest in two decades. But its economy appears to be stabilizing. Premier Li Keqiang is focused on reforms intended to boost domestic consumption and shift China’s economy away from a reliance on exports.
India, Asia’s third-largest economy, has been especially hard hit by the Fed’s polices. Its economy is hobbled by high fuel costs, low exports and poor infrastructure. India has restricted how much money Indians can send out of the country. It’s also boosted import taxes to try to stem the rupee’s slide.
But double-digit inflation has forced India’s central bank to boost interest rates, thereby making borrowing costlier for consumers and businesses. Growth slowed to an annual rate of 4.4 percent in the April-June quarter. That was down from an average rate of 8 percent from 2003 through 2011.
By contrast, in advanced economies rates remain low and growth steady. Mario Draghi, president of the European Central Bank, helped shore up Europe’s economy by declaring last year that he would do “whatever it takes” to save the euro currency.
The ECB later pledged to buy government bonds from troubled nations such as Italy and Spain. That pledge has eased borrowing costs.
The 17 nations that share the euro finally emerged from recession in the second quarter of the year after shrinking for six straight quarters.
Economic data since then suggest that a modest recovery will endure. Consumer confidence is up. Manufacturing surveys point to higher output. Many stock markets in the region are up this year.
Likewise, in Japan, Prime Minister Shinzo Abe has increased government spending and pushed the Bank of Japan to step up bond purchases to try to jolt the economy out of two decades of stagnation.
His efforts seem to have produced some tentative results. Japan’s economy expanded at a 2.6 percent annual rate in the April-June quarter after growing at a 3.8 percent rate in the first three months of the year.
But the government’s debt has topped 1 quadrillion yen, or $10.4 trillion. Japanese leaders appear divided over whether to proceed with a sales tax increase.
The U.S. economy has expanded steadily if modestly since its recession ended more than four years ago. The Fed’s low-rate policies are credited with spurring home and auto purchases and creating jobs. The U.S. economy grew at a 2.5 percent annual rate in the second quarter, the government has estimated.
But consumer spending hasn’t rebounded as much as in previous recoveries. That weakness has deprived the global economy of one of its long-standing engines: the American shopper. The world economy now depends on multiple sources of growth.
“There is no single economy that dominates the global economy anymore or will solve global problems ... by getting its act together on its own,” says Barry Eichengreen, an economics professor at the University of California, Berkeley.
Joe McDonald, Elaine Kurtenbach and Nirmala George of the AP contributed to this report.
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