The world's leading economies will do more to lift global growth and share the benefits more broadly, top policymakers said on Saturday as they sought to deal with fallout from Britain's Brexit vote and counter dissatisfaction with globalization.
Finance ministers and central bankers from the Group of 20 nation are huddling in China's southwestern city of Chengdu this weekend to discuss how to confront global challenges exacerbated by Britain's decision to leave the European Union.
Britains Phillip Hammond The new Chancellor of the Exchequer making his way to the G20 conference
The spectre of protectionism, highlighted by U.S. Republican presidential candidate Donald Trump's "America First" rhetoric and talk of pulling out of trade agreements, also hangs over the meeting.
"The recovery continues but remains weaker than desirable. Meanwhile, the benefits of growth need to be shared more broadly within countries to promote inclusiveness," the G20 ministers said in a draft communique seen by Reuters on Saturday.
The draft, which is subject to change before it is expected to be issued at the end of the meeting on Sunday afternoon, said Brexit added to uncertainty in the global economy but G20 members were "well positioned to proactively address the potential economic and financial consequences".
U.S. Treasury Secretary Jack Lew said it was important for G20 countries to boost shared growth using all policy tools, including monetary and fiscal policies as well as structural reforms, to boost efficiency.
"This is a time when it is important for all of us to redouble our efforts to use all of the policy tools that we have to boost shared growth," Lew told reporters.
Chinese Finance Minister Lou Jiwei called for more coordination to promote sustainable growth, as fiscal and monetary tools were becoming less effective.
"G20 countries should increase policy communication and coordination, form policy consensus and guide market expectations, making monetary policy more forward-looking and transparent and increase the effectiveness of fiscal policy," Lou said.
BREXIT
There is a two-year window for negotiations from when Britain triggers the Article 50 clause, something which Britain's new Prime Minister Theresa May has signalled she might not do until next year.
But Hammond added: "The uncertainty will only end when the deal is done."
The G20 meeting was the first of its kind since the Brexit vote and a debut for Britain's new finance minister, Philip Hammond, who faced questions about how quickly the UK planned to move ahead with formal negotiations to leave the EU. Many countries are worried that a long delay could add to uncertainties that are dragging on the world economy.
Britain's new finance minister Philip Hammond, under pressure from his peers from around the world, said on Sunday there could be more clarity later this year on how the country will exit the European Union.
Several nations called on Britain during weekend talks on the world economy to explain how the politically fraught Brexit process will unfold in order to avoid adding a new drag on the long and slow recovery from the financial crisis.
"It's right at the top of the agenda here at the G20," Hammond said at the end of the two-day meeting of the Group of 20 leading economies in the Chinese city of Chengdu. "It's a new factor affecting the global economic outlook and it has increased the uncertainty which the world economy faces."
The International Monetary Fund this week cut its global growth forecasts because of the Brexit vote.
That said, the survey results do increase the chances of some action from the Bank of England, perhaps an interest rate cut in August, or perhaps even some additional spending plans in the chancellor's Autumn Statement.
Britain's decision to leave the EU has led to a "dramatic deterioration" in economic activity, not seen since the aftermath of the financial crisis.
Data from IHS Markit's Purchasing Managers' Index, or PMI, shows a fall to 47.7 in July, the lowest level since April in 2009. A reading below 50 indicates contraction.
Both manufacturing and service sectors saw a decline in output and orders.
However, exports picked up, driven by the weakening of the pound.
The report surveyed more than 650 services companies, from sectors including transport, business services, computing and restaurants.
'Heading for recession'
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the figures provided the "first major evidence that the UK is entering a sharp downturn".
Although he added that the "confidence shock from the Leave vote might wear off over the coming months"
Italy
"I hope that there is going to be clarification about the timing and process of the divorce. The sooner the better so this generates a new equilibrium," Italian Economy Minister Pier Carlo Padoan
.
France Response
French Finance Minister Michel Sapin said even though Britain was not prepared for Brexit, its response time should not be indefinite.
Germany
And German Finance Minister Wolfgang Schaeuble said it should not fall to other countries to spend more to try to cushion the blow of Britain's exit.
United Kingdom
"I believe that is a matter that the Britons need to deal with themselves," he said following talks with Hammond.
Governments typically increase spending during recessions to balance plummeting private sector activity.
Economic data available in the autumn would allow London to "to reach a proper conclusion as to whether a fiscal stimulus is required"
CURRENCIES
Lew, in a meeting with Japanese Finance Minister Taro Aso, reiterated the need for G20 members to refrain from competitive devaluations, as had been agreed at a G20 meeting in February.
Regarded as a safe haven at times of market turmoil, the yen JPY= strengthened to around 100 to the dollar after the Brexit vote in late June, much to the chagrin of Japanese officials, although it has since eased back to around 106 per dollar.
Markets are speculating about a further expansion of the Bank of Japan's massive stimulus program at a July 28-29 policy review, with the yen's strength this year hitting exports and undermining efforts to escape deflation.
Bank of Japan Governor Haruhiko Kuroda said he would ease policy further if necessary to achieve its 2 percent inflation goal, but again shrugged off talk of the BOJ taking the radical policy step of "helicopter money".
"If it means that central banks are directly underwriting government bonds, or managing monetary and fiscal policies as one, that would be prohibited in Japan as well as other advanced economies, as lessons from history tell us," he said.
IMF Largarde
Ms. Christine Lagarde, Managing Director of the International Monetary Fund (IMF), issued the following statement today at the conclusion of the Group of 20 (G20) Finance Ministers and Central Bank Governors Meeting in Chengdu, China:
“We met at a time of political uncertainty from the Brexit vote, and continued financial market volatility. Lackluster growth of the post-crisis era continues, with weak demand in advanced economies and difficult transitions to a self-sustained growth model in many emerging markets. As a result, global growth has been revised downward slightly for both 2016 and 2017.
“Our discussions were taking place in a spirit of cooperation and willingness to tackle difficult issues. There was a consensus around the table that more needs to be done to share the benefits of growth and economic openness broadly within and among countries.
“In this context, I noted that the G20 members are taking actions to foster confidence and support growth. I welcome their determination to use all policy tools ---monetary, fiscal and structural--- individually and collectively to achieve strong, sustainable, balanced and inclusive growth. Structural reforms are particularly critical, as recent IMF work shows that well-designed structural reforms can lift both short- and long-term growth and make it more inclusive. Further trade liberalization is also crucial to bolster productivity and global growth, while taking steps to ensure the gains from trade are shared widely.
“The G20 members also emphasized the importance of further strengthening the International Financial Architecture and, in that context, a resilient Global Financial Safety Net (GFSN) with a strong and adequately resourced IMF at its center.
“During my visit to China, I also took part in the 1+6 roundtable hosted by the Premier Li Keqiang in Beijing where we met and discussed global developments and China’s historical transition that is currently underway. I would like to commend the authorities for the ambitious reform agenda and the significant progress they have made.
“I would like to thank Finance Minister Lou Ji-Wei and Governor Zhou Xiaochuan, the Chinese authorities, and the people in Chengdu for their generous hospitality and superb organization. I look forward to the Hangzhou G20 Summit in September."
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