Germany is against the world’s top 20 economies launching a fiscal stimulus package in the face of slowing global growth, it said yesterday as major financial powers disagreed on the best approach.
Government attempts to boost their economies with monetary loosening could be “counterproductive,” German Minister of Finance Wolfgang Schaeuble told a conference ahead of a G20 finance ministers meeting in Shanghai.
Central bankers have come under pressure ahead of the gathering of the world’s top economies to unleash fresh monetary firepower to help stimulate sagging growth and reassure investors.
Japan has already adopted negative interest rates, the European Central Bank (ECB) has embarked on a huge quantitative easing program and the US Federal Reserve has signaled possible delays to interest rate rises.
However, Schaeuble said that reforms were more important and “thinking about further stimulus just distracts from the real task at hand.”
Berlin does “not agree on a G20 fiscal stimulus package,” he added.
“Monetary policy is extremely accommodating to the point that it may even be counterproductive in terms of negative side effects,” Schaeuble said. “Fiscal as well as monetary policies have reached their limits, if you want the real economy to grow there are no shortcuts without reforms.”
Last week, the 34-member Organisation for Economic Co-operation and Development cut its global growth forecast for this year from 3.3 percent to 3.0 percent.
Schaeuble, known for being frank, has previously openly criticized the ECB for being too accommodative.
The use of spending over the past two decades to mitigate against economic crisis no longer appears to work, he said, adding that debt levels were too high, while growth remained too low.
“The debt-financed growth model has reached its limits,” he said. “If we continue on this path we no longer need to watch television, the walking dead will overwhelm us, particularly in finance and construction.”
He did not specify in which countries such zombie enterprises existed — although they are a perennial issue in China.
The holder of this year’s G20 presidency is China, the world’s second-largest economy, but its slowing growth has roiled global markets and sent prices of some commodities such as base metals plunging, leaving producer nations facing a bleak outlook.
China’s growth fell to 6.9 percent last year — high compared with most other G20 members, but the worst in a quarter of a century and a far cry from the fat years of double-digit percentage increases.
A shock currency devaluation in August last year followed by another drop in the yuan last month raised suspicions Beijing was pursuing a currency war to make its exports cheaper — at others’ expense — and a stock market slump has also raised alarms.
There is no reason for the yuan to keep falling and Beijing has more room to boost the nation’s economy, People’s Bank of China Governor Zhou Xiaochuan (周小川) said as he sought to reassure markets.
“China still has some monetary policy space and monetary policy tools to address potential downside risk,” Zhou said in a possible signal of more interest rate cuts and reductions in the amount banks must keep in reserve. “We will not resort to competitive devaluations to boost our advantage in exports.”
“The fundamentals of China’s economy remain strong,” Zhou told a conference organized by the Institute of International Finance.
Capital has been flowing out of China due to worries about flagging growth, causing the yuan to weaken — which in turn drives withdrawals. The nation’s foreign-exchange reserves have fallen to US$3.2 trillion, their lowest level in more than three years, the central bank said this month, as Beijing sells US dollars to stop the yuan from depreciating further.
In a separate statement, the Chinese central bank said yesterday that the nation’s foreign-exchange reserves, the world’s largest, would be “kept at an appropriate and reasonable level.”
“The decline of reserves during the adjustment process is normal and consistent with the ongoing economic restructuring, and a more balanced growth model,” it said.
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