Finance ministers and central bankers meeting in Shanghai have called for better policy coordination to counter a stuttering global economy and wobbly financial markets, but disagreed about what steps to take.
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US Treasury Secretary Jacob Lew holds a press conference after sessions of the G20 Finance Ministers and Central Bank Governors Meeting at the Pudong Shangri-la Hotel in Shanghai, Feb. 27, 2016.
Germany’s finance minister, Wolfgang Schauble, said fiscal stimulus has “reached its limit” and his government will not agree to more coordinated spending in the event of further deterioration in the global economy.
Underscoring concerns over the limitations of central bank-led stimulus, “monetary policy alone can not lead to balanced growth”, the document said.
“It’s also important that all G20 honor their commitments to refrain from competition devaluation and to not target exchange rates for competitive purposes”.
Host-nation China came through with the most specific plans, with Finance Minister Lou Jiwei pledging a wider fiscal deficit as his country’s leaders prepare for an annual gathering of the national legislature starting March 5.
A surprise change in August in the mechanism Beijing uses to set its exchange rate prompted fears that the yuan might be weakened to support struggling Chinese exporters.
The financial markets globally have faced mayhem in recent months.
With widespread concerns about a Chinese slowdown, a rout in global stock markets including China, and Japan’s negative interest rates, along with an additional USA rate hike, the Shanghai G20 meeting has drawn media attention across the world.
China still has ample room for fiscal policy adjustment, is likely to raise the deficit ratio and will continue to cut taxes to support innovation and small businesses, he said.
“Every country is trying to stimulate their own economy”, said Zhang Jun, director of the China Centre for Economic Research at Fudan University in Shanghai. The IMF predicted growth of 3.4 per cent for the world economy this year.
“It is time for countries to stand together to tide over difficulties”, Li said in a video message at the opening of the meeting. “If policy decisions – for example for domestic issues – lead to devaluation, we should inform and consult with the different countries”.
Premier Li also highlighted the importance of supply-side structural reforms while expanding aggregate demand as appropriate.
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.
Mr Zhou, at a conference on the meeting’s sidelines, said normalcy will return to China’s currency and financial markets because of its strong fundamentals.
The G20 in 3 Based on GDP, the G20: covers 86% of the world’s economy accounts for two-thirds of the world’s population accounts for 75% of global trade What they are saying “The global recovery continues, but it remains uneven and falls short of our ambition for strong, sustainable and balanced growth.” – draft communiqué from summit.
“We will not resort to competitive devaluations to boost our advantage in exports”, Zhou Xiaochuan added.
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Earlier Friday, China’s central bank chief promised to avoid weakening the yuan as he tried to reassure nervous financial markets about his government’s handling of its economy and currency.
