CAIRNS, AUSTRALIA – Global finance chiefs gathering in Cairns, Australia, face growing pressure to take steps to bolster growth amid a dimming global economic outlook.
Group of 20 member nations will share plans at this weekend’s summit of their finance ministers and central bank governors on ways to boost gross domestic product by 2 percent over five years, a commitment that will be reiterated in Cairns, an official representing one of the G-20 nations said, citing a draft communique.
The summit delegates view the outlook for global growth as less positive than earlier this year, the official warned.
At a G-20 gathering in Sydney in February, the world’s biggest developed economies agreed to target collective GDP growth of more than 2 percent over the next five years by sparking private-sector investment and employment.
But the global economic recovery has stuttered since then, with Europe showing signs of slipping into deflation, Japan’s revival fading due to the consumption tax hike in April, and China’s 7.5 percent growth target for 2014 becoming harder to attain.
Some of the finance chiefs at the meeting, such as U.S. Treasury Secretary Jacob Lew, are pressing their peers to consider more immediate measures to boost demand.
“Overall, the global economy continues to underperform. This is particularly true in the euro(zone) area and Japan,” Lew said in prepared remarks in Cairns on Friday. “More work is needed to achieve faster and more balanced growth, to boost demand, especially in surplus countries, and to promote employment.”
Lew told Finance Minister Taro Aso it is important for Japan to stay committed to Prime Minister Shinzo Abe’s so-called three economic arrows to resuscitate domestic demand, a Treasury Department statement said.
Concern is also growing that the yen’s recent drop to a six-year low against the dollar could hamper Japan’s growth, which is already under pressure from the sales tax hike to 8 percent from 5 percent on April 1. Yet Bank of Japan Gov. Haruhiko Kuroda on Friday shrugged off the fallout, saying he does not see “any serious problem” with the yen’s recent movements. Kuroda also said he will express at the G-20 summit the BOJ’s intention to continue drastic monetary easing to achieve its inflation target of 2 percent.
Regulations on financial institutions and overhauling the global tax system are also high on the G-20 agenda, while the deflation risk in Europe, the impact of import bans imposed by Russia over the Ukraine crisis, and the effect on emerging economies of the tapering of massive U.S. monetary stimulus will also be discussed.
Other pressing issues include measures to meet the 2 percent growth target set at Sydney.
The Organization for Economic Cooperation and Development last week trimmed its growth forecasts for the G-20 economies. In the second quarter, growth among the G-20 members slipped to 3.2 percent from a year earlier, down from 3.4 percent in the first quarter.
According to the official from the G-20 nation, the members in Cairns have come up with steps that would bring it close to, but short of, the 2 percent GDP goal.
On Friday, World Bank President Jim Yong Kim conceded in Sydney that there is “more work to do” to meet that target. “If you put all the efforts on the table, the International Monetary Fund and OECD have suggested that we’re at about 1.6 percent growth,” he noted.
Australian Treasurer Joe Hockey, the meeting’s host, stated Tuesday there is “no way” the G-20 will soften its commitment to the 2 percent growth goal. He said policymakers in Cairns will consider strategies to increase GDP but won’t disclose their plans until a G-20 leaders’ summit in Brisbane, Australia, in November.
However, a division may be emerging over how quickly measures need to be taken and how much focus should be placed on growing demand through fiscal stimulus.
Hockey has emphasized larger structural measures to achieve the 2 percent target.
“Fiscal policy isn’t going to deliver, monetary policy is not going to deliver what we need over the medium term,” Hockey said. “It’s only through reform, and it has to be hard reform.”
Lew has been making the case for more urgent steps to lift domestic demand so the world has multiple engines of growth.
“Stimulating demand in the short term is part of the solution,” the U.S. treasury secretary said before departing for Cairns last week.
Several G-20 members support fiscal and monetary stimulus, the official in Cairns said Thursday. Even some of the strongest proponents of fiscal consolidation in the G-20, such as Germany, are suggesting government budgets could play a larger role.
“I don’t think this is the time to abandon prudence, but there has to be some flexibility over the shorter term because we really don’t want the world’s largest economy to start going into a deflationary spiral,” Canadian Finance Minister Joe Oliver said in an interview ahead of the Cairns meeting, referring to Europe.
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