SHANGHAI – Finance leaders from the world’s 20 major economies on Saturday called for using every possible measure to improve market stability and prop up sagging growth, according to a statement that was to be issued upon conclusion of their two-day meeting in Shanghai.
“We will use all policy tools — monetary, fiscal and structural — individually and collectively” to enhance “growth, investment and financial stability,” according to a final communique released in Shanghai despite German disquiet over fiscal and monetary stimulus.
The meeting of the Group of 20 finance ministers and central bankers, which began on Friday, comes at a time when investors and policymakers of many countries are closely watching whether they can send a message strong enough to assuage the anxieties in global markets stemming from stock sell-offs and a rise in currency volatility this year.
Leading into the meetings, Bank of England Gov. Mark Carney warned counterparts against getting embroiled in a currency war by pushing interest rates too low, while International Monetary Fund Managing Director Christine Lagarde said the effects the various monetary policies are having, even innovative ones, are diminishing.
With the U.K. mulling spending cuts, Japan planning a sales tax increase, Germany’s finance minister warning debt-funded growth just leads to “zombifying” economies, and the U.S. constrained by a lame duck president and a Republican-controlled Congress, it may fall to China to ratchet up the fiscal firepower.
“Investor hopes of coordinated policy actions proved to be pure fantasy,” said David Loevinger, a former China specialist at the U.S. Treasury and now an analyst at fund manager TCW Group Inc. in Los Angeles. “It’s every country for themselves.”
On the first day of the meeting, disagreements about the right remedy to counter the slowdown in global expansion emerged after German 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.”
The U.S., Britain, the European Union and China, however, have all backed the use of monetary policy.
The communique also assessed that “recovery (of the global economy) continues, but it remains uneven and falls short of our ambition for strong, sustainable and balanced growth.”
China, which hosted the G-20 forum for the first time, was at the center of attention as a slowdown in its growth, due to overcapacity, and opaque monetary policies, have been a major trigger for the recent market turbulence.
The ministers and central bankers from the Group of Seven industrialized countries, including Britain, Germany, Japan and the United States, but not China, met informally on Saturday.
They gathered in the Chinese economic hub early in the morning before the G-20 gathering started its second day of discussions, officials with direct knowledge of the situation said.
In line with the G-20’s past commitments, the top policymakers agreed to “refrain from competitive devaluations and we will not target our exchange rates for competitive purposes.”
Most notably China, the world’s second-largest economy, which has been trying to achieve a well-managed rebalancing of its growth model, has found itself under international pressure in recent weeks to explain its foreign exchange and other monetary policies more clearly.
On this point, the G-20 finance leaders said, “We will calibrate and clearly communicate our macroeconomic and structural actions to reduce policy uncertainty, minimize negative spillovers and promote transparency.”
“The global economic and financial situation may have become more grim and complex,” Chinese Premier Li Keqiang said in a video message to the G-20 meeting, according to a government transcript. “It is time for countries to stand together to tide over difficulties.”
China’s economic slowdown has sharply pulled down oil and other commodity prices, with investors showing risk aversion in the preference of their assets and pulling money out of emerging countries.
The policymakers of the leading developed and developing economies discussed how best to tackle the capital outflows, which have accelerated after the U.S. central bank ended seven years of near-zero interest rates in December, according to officials with direct knowledge of the meeting.
China said it plans to unveil more specifics of its economic policy direction, in particular with regard to the ongoing structural reforms, this week when the country’s top legislature, the National People’s Congress, convenes its annual session, the officials, who spoke on condition of anonymity, said.
For its part, Japan signaled a desire to avoid confrontation at the gathering, which occurs less than a month after the Bank of Japan roiled markets with a surprise move to adopt negative interest rates. BOJ Gov. Haruhiko Kuroda, speaking to lawmakers in Tokyo before flying to Shanghai, said there was no preset plan for the BOJ to implement further cuts in rates, and — along with Finance Minister Taro Aso — highlighted that the G-20 was agreed on avoiding competitive devaluations.
In the communique, the global finance chiefs also called for development lenders such as the World Bank to help support economic growth by further opening the infrastructure taps. Multilateral development banks should present concrete actions by July, according to the draft.
In its list of downside risks and vulnerabilities, the communique noted “the shock of a potential U.K. exit from the European Union” in the seventh line of its text.
Such prominent inclusion in the final document marks a win for Chancellor of the Exchequer (finance minister) George Osborne, who had sought to rally international finance chiefs behind the campaign to keep Britain in the European Union. The chances of the U.K. voting to leave the EU climbed after London Mayor Boris Johnson backed the exit, according to some analyst estimates.
The “large and increasing number of refugees in some regions” was also flagged high in the document. European officials are struggling to solve the worst migration crisis since World War II, with Slovenia and Croatia last week cutting the number of refugees they will let across their borders, potentially bottling up migrants arriving in Greece in what that country’s government warned could create a humanitarian disaster.