Forty-one years ago, the world had what was known as The Group of 6 (G-6).
France, Germany, Italy, Japan, the United States, the United Kingdom would meet regularly to discuss international economic and monetary issues, international security, and energy policies, as well as preventing economic catastrophes from crippling the global community.
In short, it was formed to address powerfully pressing economic concerns, which at the time included runaway inflationary pressures and a recession sparked by the OPEC oil embargo.
Canada would join the following year in 1976, creating the G-7.
By 1999, though, at the suggestion of the G-7, the G-20 was created in response to one of the worst financial crises the world has seen – the Asian Contagion, which ran from 1997 to 1999.
We’re sure you remember the story.
In 1997, as the Thai bhat collapsed, market shocks quickly spread to Southeast Asian countries, resulting in widespread currency and market crises throughout the region.
Fallout then struck markets all over Latin America and Eastern Europe.
By 1998, Russia and Brazil watched their economies free-fall on the fallout.
Then markets and economies from New York to Tokyo hit record lows, as investor confidence dropped, creating an unstable and wildly unpredictable economic climate.
The G-20 as requested by the G-7 became a necessity.
Even during and after the global financial crisis in 2008 and 2009 following the collapse of Bear Stearns and Lehman Brothers, the Group of 20 created broader agreements on financial regulations, most notably when it came to tightening international capital standards.
The group mobilized trillions of dollars in fiscal stimulus, and helped rebuild confidence in the international financial system.
It now includes 19 countries and the European Union, all of whom met again over Labor Day weekend in Hangzhou, China.
The Outcome of the G-20 Summit
While the G-20 members reached broad agreements on revitalizing sagging growth in the global economy, the final communiqué greatly lacked any details on how it plans to do so.
Chinese President Xi Jinping did note the G-20 would put in place guidance on improving global investments, exploring structural overhauls, and the need for measures beyond historically low interest rates to boost the global economy.
Even the International Monetary Fund (IMF) has said the reliance on low interest rates cannot continue for much longer, and noted that it expects to again cut its forecast for a 3.1% global expansion in 2016.
Unfortunately, there were no concrete plans or notes on how this can be accomplished.
Two other hot button issues were climate change and steel production.
China and the United States ratified the Paris climate change agreement. The two are the first major countries to join the climate pact, bringing the total number of nations to 26, which makes up 39% of global emissions.
With regards to steel, China’s steel production has led to incredible global overproduction and supply issues. In fact, China’s excess supply is greater than what the U.S. produces in a year.
To handle it, G-20 members are proposing that a global forum monitor the situation, come up with a plan, and report back in a year. China has agreed to this, as well.
However, China has also vowed to cut 100 million to 150 million tons of steel capacity over the next few years. Unfortunately, that would only remove a third of excess production. At the moment, the global community is struggling with 700 million tons of excess capacity.
While we were hoping for greater, more concrete plans to boost economic growth, we were left without a great amount of details. It remains to be seen how this conference will impact the world economy and markets.