The statement out of the latest G20 summit in Seoul was pretty much as expected, with no real progress on global imbalances, and incremental progress in other areas, notes TD Economics.

TD says that there were no big surprises out of this latest meeting of the leaders of the world’s economic powers. “A formal agreement to resist protectionism was made, but risk of future currency tensions may have increased,” it says.

Also, while the G20 recognizes that resolving global imbalances is the key to sustainable growth, TD says, “the suggestion of putting a spotlight on countries with imbalances could raise tensions”; and, it notes that the leaders “failed to adequately signal that the unwinding of imbalances could take many years.”

There was some progress on Basel III financial regulation and IMF governance, and while there is still work to be done in both areas, TD says “both are positive developments that should not be overlooked.”

But, the “key unresolved theme” of the summit remains global imbalances. Additionally, TD Economics says that it “has some concerns” regarding the recommendation for the IMF and other international organizations to develop a indicators to identify large imbalances by the first half of 2011.

“While the G20 is correct in noting that global imbalances must be dealt with, once explicit rules are established that could be used to put a spotlight on selected countries with outsized imbalances, political tensions could escalate,” TD says.

Moreover, it reiterates that unwinding the imbalances may take years, and even decades, which raises the risk that some countries could opt for protectionist policies. “While the G20 members have correctly diagnosed the main challenge facing the world economy, we are not optimistic about how quickly these imbalances can be unwound,” it says. “There is no magic wand to make them disappear and progress could take many years.”

“It was certainly a positive development that G20 members are still committed to cooperation and resisting protectionism and competitive currency devaluations, but actions always speak louder than words. The bottom line is that G20 participants must now move from rhetoric to action in order to ground market expectations,” it concludes.

IE