Leaders of the world's 20 major economies will meet in Toronto, Canada, this weekend to discuss ways to continue coordinating action taken last year to address the global financial crisis and resulting economic downturn. Because of those actions, the world economy is expanding again, and the upcoming talks provide an opportunity to secure a durable recovery.
Coordinated action was vital, since the downturn was the most serious since the 1930s. It began as a financial crisis, as bad loans and risky investments brought banks to their knees and dried up credit. This deprived businesses of the money needed to fund their operations and plans for expansion. Companies cut jobs, people curbed their spending and the ensuing drop in demand resulted in more job losses. International trade also fell, which especially hurt commodity-producing developing nations in places such as Africa and Latin America.
Acting together, the United States and its G-20 partners increased spending on government programs and projects to stimulate their economies; they provided more money to the International Monetary Fund to assist other nations; they made key reforms in their banking systems to address the problems that led to the financial meltdown; and they resisted taking protectionist actions that could harm their trading partners. The IMF now estimates that global economic growth will exceed four percent this year and perhaps by an equal amount in 2011.
Concerns are mounting, however, over the sustainability of government spending to help stimulate economic growth. The fear is that this could severely strain future finances.
While the economic recovery is real, it is also modest and uneven. Going forward, priority must be given to safeguarding and strengthening the recovery. Nations must continue working together to support strong and sustainable economic growth, with special attention to ensuring credible commitments to restore fiscal sustainability when economic conditions improve.