The world’s 20 top economies will use all policy tools available to lift sluggish global growth, they said yesterday, despite German disquiet over fiscal and monetary stimulus.
The G20 finance ministers and central bank chiefs meeting in Shanghai said in a communique that while the global recovery was continuing, “it remains uneven and falls short of our ambition for strong, sustainable and balanced growth”.
The gathering came amid fears driven by slowing growth in host nation China, steep falls in world financial markets, and US 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% to 3%.
The G20 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 emerged on Friday, the first day of 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 US, Britain and China, which all backed the use of monetary and fiscal tools to fight a downturn, as well as structural reforms.
Berlin does “not agree on a G20 fiscal stimulus package”, the German minister said.
In the event the communique acknowledged: “Monetary policy alone cannot lead to balanced growth,” and said fiscal policy would be used “flexibly”, while giving a nod to the importance of structural reforms.
But France’s Finance Minister Michel Sapin told AFP earlier that while “no-one” was suggesting a co-ordinated global stimulus package, those in a “better situation” should use it in an “intelligent” way to “support global demand”.
Asked about the German stance, he said some countries might be “reluctant for historic, cultural reasons, which can be understandable... but today we are in an economic situation which requires all the policy tools that exist to be used”.
US Treasury Secretary Jacob Lew told reporters Friday that “it’s increasingly important to use all the levers of policy that are available, and that means using fiscal levels as well as monetary policy and structural reforms”.
While the US Federal Reserve raised interest rates in December, many analysts believe it will delay any more tightening given renewed risks for the US recovery.
This year the Bank of Japan and the European Central Bank (ECB) adopted negative interest rates and huge quantitative easing programmes.
But the document did not express any explicit concerns over China, where growth has slowed to its weakest in 25 years.
In the communique the group reaffirmed their previous commitments to “refrain from competitive devaluations” or “target our exchange rates for competitive purposes”.
There are widespread concerns Beijing could lower the value of its yuan in order to lift its struggling export sector – at its competitors’ expense – though Chinese officials deny any such plans.
“There is no basis for persistent renminbi depreciation from the perspective of fundamentals,” People’s Bank of China chief Zhou Xiaochuan said Friday. “We will not resort to competitive devaluations to boost our advantage in exports.”