World Economy

G20 Leaders Split on Policy

G20 Leaders Split on Policy
G20 Leaders Split on Policy

Global finance chiefs laid bare their differences over how to revive the economy on Friday as analysts warned that "policy paralysis" would spark fresh market turmoil.

As George Osborne, the UK chancellor, said the risks facing the world were at their "most heightened" since the financial crisis, Jack Lew, the US treasury secretary, said leaders would need to use "all policy levers" to boost growth and lift the world out of its current malaise, news outlets reported.

"That means using fiscal levers as well as monetary policy and structural reforms," he said on the sidelines of the G20 meeting in Shanghai, China.

His comments were supported by China's central bank governor, who sought to reassure investors that the world's second largest economy would not suffer a hard landing.

"China will strike a balance between growth, restructuring and risk management," said Zhou Xiaochuan.

Zhou reiterated that China would not devalue its currency again to try to boost the economy. He said there was "no basis for persistent renminbi depreciation".

Chinese Finance Minister Lou Jiwei said the country could tackle the pressures it is currently facing.

Separately, Bank of England Governor Mark Carney said he was concerned by moves by some central banks to use negative rates to try to boost growth.

"There are limits to the extent to which negative rates can achieve this." He also said that governments needed to step up the pace of economic reforms.

"Global growth has disappointed because the innovation and ambition of global monetary policy has not been matched by structural measures,'' Carney said.

However, Wolfgang Schaeuble, the German finance minister, rejected the idea of coordinated stimulus. He said monetary firepower was now limited, while growth fuelled by government spending alone risked "zombifying" economies.

"Talking about further stimulus just distracts from the real tasks at hand," he said. "We, therefore, do not agree on a G20 fiscal stimulus package as some argue, in case outlook risks materialize."

Based on gross domestic product, the G20 covers 86% of the world's economy, accounts for two-thirds of the world's population and 75% of global trade.

Striking a Balance

China's economy, the second-biggest in the world, is growing at the slowest rate in 25 years as it attempts to move from an export-led nation to one led by consumption and services.

The slowdown in China's economy has created considerable uncertainty in financial markets and has led to sharp falls in commodity prices.

However, the head of the International Monetary Fund, Christine Lagarde, said China faced an "overwhelming" agenda of structural reforms.

Earlier this week, the IMF said the global economy had weakened further and that it was now "highly vulnerable to adverse shocks".

It said the weakening had come "amid increasing financial turbulence and falling asset prices" and that China's slowdown was adding to global economic growth concerns.

Market Watch

Analysts at Citi said markets were watching the meeting in Shanghai closely for signs that policymakers were prepared to deploy immediate action to prevent a slowdown rather than reiterate a 2014 commitment to boost growth.

Steven Englander, head of currency strategy at the bank, said failure to do so would be taken badly by investors.

“Keeping the previous language would be very disappointing and would be viewed as either complacent or reflecting policy paralysis. The G20 needs to man up and tell member countries that monetary policy should be accompanied by fiscal expansion,” he said.

A communique is expected at the conclusion of the meeting on Saturday.

Global Stocks Rise

Stock markets inched higher for the third day in five on Friday as G20 meeting  sought to find common ground on how to reboot a struggling global economy in the face of renewed financial and political risks.

Another day of steadier oil and currency prices supported a slightly improved mood after a week marked chiefly by the woes of Britain's pound at the start of a campaign over whether to leave the European Union in a June 23 referendum.

Chinese and other Asian stock markets made guarded gains and Europe's major markets were all up by around 1%. The yuan currency, battered in January by speculation that Beijing would have to devalue sharply, was roughly steady.