The world’s 20 top economies will agree to use all policy tools to lift sluggish global growth, according to a draft communique obtained by Bloomberg News on Saturday, despite German disquiet over fiscal and monetary stimulus.
The G20 finance ministers and central bank chiefs meeting in Shanghai agreed to use those methods, as well as structural reforms, “individually and collectively” to strengthen growth, investment and financial stability, the draft said, adding fiscal policy will be used “flexibly”.
“The global recovery continues, but it remains uneven and falls short of our ambition for strong, sustainable and balanced growth,” Bloomberg quoted the document as saying.
The G20 meeting comes amid fears driven by slowing growth in host nation China, steep falls in world financial markets, and US interest rates having risen for the first time in nine years—while Japan has adopted negative rates. The OECD last week cut its 2016 global growth forecast from 3.3 percent to 3.0 percent.
But disagreements about the right remedy emerged on Friday, 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—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.” 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 said.
France’s Finance Minister Michel Sapin said on Saturday that while “no-one” was suggesting a co-ordinated global package, those in a “better situation” should use it in an “intelligent” way to “support global demand”. Asked about the German stance, he said that some countries may 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”.
US Treasury Secretary Jacob Lew told reporters on Friday that “it’s increasingly important to use all the levers of policy that are available, and that means using fiscal levels as well as monetary policy and structural reforms”.
While the US Federal Reserve raised interest rates in December, many analysts believe it will delay any more tightening given renewed risks for the US recovery.
This year the Bank of Japan and the European Central Bank (ECB) adopted negative interest rates and huge quantitative easing programmes. The draft communique also recognises the challenges posed to the world economy by geopolitical turmoil, and recognised risks from Britain possibly leaving the EU in a so-called “Brexit”, along with the EU’s mounting refugee crisis. It nevertheless affirmed that “the magnitude of recent market volatility has not reflected the underlying fundamentals of the global economy”.
But it did not express any explicit concerns over China, where growth has slowed to its weakest in 25 years.
The draft showed a pledge to “consult closely” on foreign exchange markets, and reaffirmed commitments not to engage in competitive currency devaluations.
There are widespread concerns Beijing could lower 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 on Friday. “We will not resort to competitive devaluations to boost our advantage in exports.”