Shanghai / AFP
Finance chiefs from the world’s top economies committed their governments to doing more to boost global growth amid mounting concerns over the potency of monetary policy.
In a pledge that will prove easier to write than deliver and may disappoint investors looking for a coordinated stimulus plan, the Group of 20 said “we will use fiscal policy flexibly to strengthen growth, job creation and confidence.” After a two-day meeting in Shanghai, finance ministers and central bank governors also doubled down on a line from their last gathering that “monetary policy alone cannot lead to balanced growth.”
For those few analysts calling for a 1985 Plaza Accord-type agreement to address exchange-rate tensions, there was no such luck: International Monetary Fund Managing Director Christine Lagarde said there were no discussions about anything like that. The G-20 members did reaffirm they will refrain from competitive devaluations, and—in new language—agreed to consult closely on currencies.
An increasing sense monetary policy is reaching its limit permeated officials’ briefings during the meetings that ended on Saturday. While central banks proved critical in avoiding a global slide into depression last decade, there is now no consensus among the world’s top economic guardians backing stepped-up monetary stimulus. That leaves focus on fiscal polices that are subject to domestic political constraints, and a structural-reform agenda the G-20 said will be gauged through a new indicator system.
“Central bankers have done their bit in recent years to stabilize the world economy,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. “But as their tools are losing their effectiveness, only more aggressive fiscal policy and structural reforms will help to lift growth.”
Among those publicly indicating a potentially reduced role for central banks was Lagarde, who said on Friday the effects of monetary policies, even innovative ones, are diminishing. Bank of England Governor Mark Carney used a Shanghai speech ahead of the G-20 to voice skepticism over negative interest rates—now in place in continental Europe and Japan—and their ability to boost domestic demand.
For his part, Chinese Premier Li Keqiang, speaking in a pre-recorded video at the
G-20, said quantitative easing policies can’t remove structural obstacles to growth and may lead to negative spillovers. The People’s Bank of China has been using more orthodox tools to support fiscal spending and structural reforms.
Adding to an atmosphere of unease about further central bank actions, some officials expressed concern about Japan’s policies, after its surprise move to adopt negative interest rates last month roiled the currency market.
“The debate was also about Japan to be honest—there was some concern that we would get into a situation of competitive devaluations,” Eurogroup chief Jeroen Dijsselbloem, who heads gatherings of euro area finance ministers, told reporters Saturday. “If policy decisions—for example for domestic issues—lead to devaluation, we should inform and consult with the different countries.”
Japanese policy makers are now contending with a yen that rallied more than 6 percent in February, the biggest monthly surge since 2008