G-20 nations pledge all tools to lift growth

SHANGHAI - Agence France-Presse

AP photo

The world’s 20 top economies will use all policy tools available to lift sluggish global growth, they said on Feb. 27, despite German disquiet over fiscal and monetary stimulus.

The global recovery was continuing but “remains uneven and falls short of our ambition for strong, sustainable and balanced growth,” the G-20 finance ministers and central bank chiefs said in a communique in Shanghai.

They met amid fears driven by slowing growth in host nation China, steep falls in world financial markets, and U.S. interest rates having risen for the first time in nine years, while Japan has adopted negative rates. The OECD last week cut its 2016 global growth forecast from 3.3 percent to 3.0 percent.

The G-20 communique cited a list of specific risks the world faces, including volatile capital flows, falling commodity prices and rising geopolitical tensions, along with “the shock of a potential UK exit from the European Union and a large and increasing number of refugees in some regions”.

But disagreements about the right remedy overshadowed the meeting, after Germany’s Finance Minister Wolfgang Schaeuble said attempts to boost economies with monetary loosening could be counterproductive and fiscal stimulus -governments spending more or cutting taxes- had run its course.

“Fiscal as well as monetary policies have reached their limits,” he said. “If you want the real economy to grow there are no shortcuts without reforms.”   

As the European Union’s largest and richest member, Germany sometimes has different economic priorities to other countries and Schaeuble was at odds with the United States, Britain and China, which all backed the use of monetary and fiscal tools to fight a downturn, as well as structural reforms.

U.S. Treasury Secretary Jacob Lew said that weak demand was a key problem, adding: “We need to redouble our efforts to boost global demand rather than relying on the United States as the consumer of first and last resort.”   

In the event the communique said the group “will use all policy tools - monetary, fiscal and structural - individually and collectively” to build confidence and strengthen the recovery.

But it acknowledged that increasing the money supply alone would not lead to balanced growth and said fiscal policy would be used “flexibly”, while giving a nod to the importance of structural reforms.

IMF managing director Christine Lagarde urged: “Without collective, deliberate action on the part of policymakers and implementation there is risk that the recovery could derail.”  

But analysts were underwhelmed. Lu Zhengwei, chief economist of Citic Bank International, said the language used showed ministers realized the seriousness of the world economic situation, “but the problem... is the implementation.”