HANGZHOU, CHINA – Leaders of the Group of 20 economies stressed their commitment to achieving “strong, sustainable, balanced and inclusive growth,” even as they face mounting structural and other challenges standing in the way of reaching their goals.
Chinese President Xi Jinping, the chair of this year’s meeting, hailed the outcome of the two-day summit in the eastern Chinese city of Hangzhou, saying the event “achieved fruitful results,” as the leaders displayed solidarity for closer coordination of macroeconomic policies.
In the “Hangzhou Consensus” adopted by the G-20 advanced and emerging economies, the leaders pledged to use all available policy tools — monetary, fiscal and structural policies — to lift growth, placing emphasis on structural reforms for medium- to long-term economic expansion.
But the G-20 economies have yet to come up with specific and concrete solutions to lift global growth, weighed down by a slowdown in China.
Regarding oversupply of steel and other products, Prime Minister Shinzo Abe pointed out at the summit that the market has been distorted by subsidies and other government support measures, calling them a “fundamental problem.”
“I’d like to urge structural reforms in accordance with market mechanisms while ensuring transparency through dialogue in a global forum to be participated in by major producing countries,” a Japanese official quoted Abe as saying.
Abe was referring to a new G-20 agreement to launch a forum to specifically discuss ways to deal with excess capacity. But it remains uncertain how effective the new framework would be in resolving the problem.
“While other countries want China to resolve the oversupply issues quickly, they also don’t want to see a hard landing of the Chinese economy that may lead to a global economic crisis,” said Toru Suehiro, senior market economist at Mizuho Securities Co.
Given that the global economy is still on a recovery track, no country wants to suffer a significant economic setback, he said.
“As long as China and other countries allow the problem to be resolved without adopting a drastic approach, the world economy is unlikely to see a V-shaped recovery,” Suehiro added.
In addition to excess steel supply, a rise in protectionism has dampened global trade, prompting G-20 leaders to reiterate their support for the multilateral trading system.
According to the World Trade Organization, the global trade in goods in 2015 grew 2.8 percent from the previous year in volume terms and is expected to remain below 3 percent this year for the fifth consecutive year.
That compares with 3.1 percent global economic growth in 2014, according to the International Monetary Fund.
At a G-20 finance ministers’ meeting prior to the summit, the finance chiefs seemed more concerned about protectionism, given that growth in trade has been slower than that of global gross domestic product, a senior Japanese Finance Ministry official said.
The prospects of the U.S. Congress ratifying a Pacific free trade deal has become unclear amid rising protectionist sentiment, although lame-duck President Barack Obama backs the pact.
“It is clear that the entire world is becoming more introverted, as seen in Britain’s decision to leave the European Union,” said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities Inc.
“If a politically introspective mindset disturbs the flow of funds and free market operations for the pursuit of high profits and investment opportunities, it would be unfavorable to economic growth,” according to Maruyama.
Similarly, Japan is no exception in facing the need to carrying out structural reforms to emerge from low economic growth.
In Japan, public concern over immigration has prevented the government from taking drastic steps, despite the country’s pressing need to address its rapidly aging society and low birthrate.
“To resolve the issue of declining population quickly, hosting immigrants would be a solution,” Maruyama said. “Of course there would be various costs such as security concerns and cultural differences, but it is desirable to accept them even if we have to overcome these challenges.”
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