The world’s top economies were set to declare yesterday that they need to look beyond ultra-low interest rates and printing money if the global economy is to shake off its torpor, while promising a new focus on structural reform to spark activity.
A draft of the communique to be issued by the G20 finance ministers and central bankers at the end of a two-day meeting in Shanghai reflected myriad concerns and policy frictions that have been exacerbated by economic uncertainty and market turbulence in recent months.
“The global recovery continues, but it remains uneven and falls short of our ambition for strong, sustainable and balanced growth,” the leaders said in a draft seen by Reuters.
Photo: AP
“Monetary policies will continue to support economic activity and ensure price stability ... but monetary policy alone cannot lead to balanced growth.”
Geopolitics figured prominently, with the draft noting risks and vulnerabilities had risen against a backdrop that includes the shock of a potential British exit from the EU, which is to be decided in a June 23 referendum, rising numbers of refugees and migrants, and downgraded global growth prospects.
However, there was no sign of coordinated stimulus spending to spark activity, as some investors had been hoping after the market turmoil that began this year.
Divisions have emerged among major economies over the reliance on debt to drive growth and the use of negative interest rates by some central banks, such as in Japan.
Germany had made it clear it was not keen on new stimulus, with Finance Minister Wolfgang Schaeuble on Friday saying that the debt-financed growth model had reached its limits.
“It is even causing new problems, raising debt, causing bubbles and excessive risk-taking, zombifying the economy,” he said.
The G20, which spans major industrialized economies such as the US and Japan to the emerging giants of China and Brazil and smaller economies such as Indonesia and Turkey, reiterated in the communique a commitment to refrain from targeting exchange rates for competitive purposes, including through devaluations.
While G20 host China has ruled out another devaluation of the yuan after surprising markets by lowering its exchange rate in August last year, there still appeared to be concerns that some members might seek a quick fix to domestic woes through a weaker currency.
Japanese Minister of Finance Taro Aso late on Friday said that he had urged China to carry out currency reform and map out a mid-term structural reform plan with a timeframe.
US Treasury Secretary Jack Lew also encouraged China to shift to a more market-oriented exchange rate in “an orderly way” and “refrain from policies that would be destabilizing and create an unfair advantage.”
Global finance chiefs are stepping up their call for development lenders such as the World Bank to help support economic growth.
Multilateral development banks should present concrete actions by July, according to the draft.
G-20 finance ministers and central bankers also said in the draft that they are committed to advancing investment by focusing “on infrastructure both in terms of quantity and quality aspects.”
The World Bank is planning to coordinate its efforts more closely with other multilateral lenders, such as the Asian Development Bank and the China-led Asian Infrastructure Investment Bank (AIIB). The US$100 billion AIIB with 57 founding members formally opened its doors last month in Beijing and may announce the first batch of investments around June.
“There’s a lot that the multilateral investment banks can do on the demand side,” World Bank president Jim Yong Kim said in a Bloomberg Television interview on Friday.
The World Bank is trying to work more closely with the AIIB and other lenders, “to increase investment in infrastructure in developing countries.”
Additional reporting by Bloomberg
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