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Thu, 24 Jun 2010 - 16:20

G 20 Summit - Toronto

Last year we took a look at the emergency G 20 summit held in London in the midst of the global financial crisis (April 2009) just one month after global markets bottomed. In the report we discussed how co-ordinated all the countries were in the need to bring the global economy out of the recession.

In an environment of widespread stress, it was fairly easy to get consensus on what needed to be done over the short term to return to a path of growth. This meeting, currently being held in Toronto, Canada, has G 20 members divided on what is required going forward. This is a result of the fortunes of the different countries deviating over the past year or so.

We'll take a brief look at some of the conflicting objectives of some of the member nations:

South Africa: While the economies of the developed markets are not completely out of the woods, they'll continue on introspection (i.e. assisting their own economy). President Jacob Zuma, and Finance Minister Pravin Gordhan have the task of reminding these world leaders that Africa, and other developing regions, continue to need to foreign direct investment. South Africa will also look to reposition itself in order to stimulate growth, i.e. target our trade with high growth regions.

China: A few of the issues that China will be addressing are the need for greater representation by emerging markets and developing countries. Clearly in a climate where there is temptation to protect one's own market, China, the world's largest exporter, will oppose any plans that promote trade protectionism.

United States of America: The US will target continued stimulus around the world. Their fears are that a premature withdrawal of stimulus could plunge many economies back into recession. They would rather aim for growth, and deal with the ramifications of high debt levels in the future. The US will be pleased that China has announced a fresh round of exchange rate reform (i.e. let its currency appreciate to improve relative competitiveness of other countries).

Germany: Angela Merkel of Germany doesn't want to stimulate consumption expenditure by increasing government expenditure (Keynesian economics) arguing that Germans will only spend more if they are comfortable that the government is fiscally strong, and will be able to support them if necessary. As part of the EU she needs to look at the region's interests as well. While the euro is weak the export heavy country is able to boost its exports.

Canada and Great Britain: One thing these two countries have in common is the desire to reduce government deficits going forward (over the next 5 years or so). A major point of contention is that Britain desires a global bank tax to avoid taxpayers having to bail out banks in the future, while Canada is vehemently against such a levy.

France: After a fairly extensive search of France's views didn't reveal much, I realised that Nicholas Sarkozy probably has his hands tied up at the moment with an enquiry into the French football team's lack of performance, and off field shenanigans after being knocked out the FIFA World Cup first round, without a win to their name, earlier in the week.

Take care, and enjoy the soccer!

Mike Browne info@seedinvestments.co.za www.seedinvestments.co.za 021 9144 966

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