The world’s top 20 economic powers pledged during a ministerial meeting on Saturday to use all policy tools at their disposal to uplift the world’s sluggish economic growth.
The G20 finance ministers and central bank chiefs meeting in Shanghai, China, said in a communiqué that while the global recovery was continuing, “it remains uneven and falls short of our ambition for strong, sustainable and balanced growth,” AFP reported.
The gathering was held amid fears about the general slowing down of economic growth in the host nation, China, drastic drop in world financial markets, and US interest rates having risen for the first time in nine years, while Japan has adopted negative rates.
The meeting came after the Organization for Economic Cooperation and Development (OECD) cut its 2016 global growth forecast from 3.3 percent to 3.0 percent last week.
The G20 communiqué cited a list of specific risks the world faces, including volatile capital flows, falling commodity prices and rising geopolitical tensions, along with “the shock of a potential UK exit from the European Union and a large and increasing number of refugees in some regions.”
However, disagreements about the right solution emerged on Friday, which was the first day of the meeting, after Germany’s Finance Minister Wolfgang Schaeuble said attempts to boost economies with monetary loosening could be counterproductive and fiscal stimulus, which aims to make governments spend more or cut taxes, had run its course.
“Fiscal as well as monetary policies have reached their limits,” he said, adding, “If you want the real economy to grow there are no shortcuts without reforms.”
As the European Union’s largest and richest member, Germany sometimes has different economic priorities to other countries and Schaeuble was at odds with the United States, Britain and China, which all backed the use of monetary and fiscal tools to fight a downturn, as well as structural reforms.
Berlin does “not agree on a G20 fiscal stimulus package,” the German minister clearly said.
The communiqué acknowledged, “Monetary policy alone cannot lead to balanced growth,” saying that fiscal policy would be used “flexibly,” while giving a nod to the importance of structural reforms.
In the meantime, France’s Finance Minister Michel Sapin told AFP that while “no-one” was suggesting a coordinated global stimulus package, those in a “better situation” should use it in an “intelligent” way to “support global demand.”
Asked about the German stance, he said some countries might be “reluctant for historic, cultural reasons, which can be understandable… but today we are in an economic situation which requires all the policy tools that exist to be used.”
The G20 communiqué, however, did not express any explicit concerns over China, where growth has slowed to its weakest in 25 years.
In the communiqué the group reaffirmed their previous commitments to “refrain from competitive devaluations” or “target our exchange rates for competitive purposes.”
There are widespread concerns among G20 countries that Beijing may cut the value of its yuan in order to lift its struggling export sector, though Chinese officials deny any such plans.
“There is no basis for persistent renminbi depreciation from the perspective of fundamentals,” People’s Bank of China chief, Zhou Xiaochuan, said Friday, adding, “We will not resort to competitive devaluations to boost our advantage in exports.”