Finance ministers and central bankers from the Group of 20 ended their Mexico City meeting Nov. 5 with a communique stressing that “We will do everything necessary to strengthen the overall health and growth of the global economy.”
The communique stated: “Global growth remains modest and downside risks are still elevated, including due to possible delays in the complex implementation of recent policy announcements in Europe, a potential sharp fiscal tightening in the United States, securing funding for this year’s budget in Japan, weaker growth in some emerging markets and additional supply shocks in some commodity markets.”
Since uncertainties surround the world economy, it is all the more important for both developed and emerging economies to share a sense of crisis and cooperate to eradicate downward risks and to prevent a financial crisis like the Lehman Brothers shock. But the G-20 meeting lacked an impact because finance ministers from the U.S., China and Brazil and the head of the European Central Bank were absent.
The European sovereign debt crisis, the biggest downward risk factor, appears to have been tamed temporarily as the ECB announced a policy to buy bonds issued by governments in financial difficulty and the European Stability Mechanism was established in September. But a “sharp fiscal contraction” reaching some $560 billion (some ¥45 trillion), due to tax increases and spending cuts, is likely to occur in the U.S. in 2013. The U.S. said that it will strive to avoid a contraction. But if it happens, it will negatively impact the global economy.
Exports by China and other emerging economies to Europe have slowed because of the latter’s sluggish economy. China’s real gross domestic product increased only 7.4 percent in July-September from the same period in 2011.
The low growth in China has negatively affected the economies of the Association of Southeast Asian Nations members, which greatly rely on exports to China. Emerging economies need to strengthen their domestic markets and increase internal demand.
In the Mexico City G-20 meeting, emerging economies expressed concern that a flow of money into them as a result of the U.S.’ third monetary easing may cause inflation. Such a flow of money is also likely to raise the value of the currencies of those economies. The communique said that “excess volatility of financial flows and disorderly movements in exchange rates have adverse implications for economic and financial stability.” The G-20 countries must take care to avoid competitive devaluation of currencies.
In the meeting it was pointed out that Japan’s failure to enact a bill to issue bonds covering some 40 percent of the fiscal 2012 budget constitutes a downward risk for the global economy. The Diet must quickly act to enact the bill.
Japan also must make serious efforts to improve relations with China because troubled ties between the two countries could hamper the global economic recovery.