The Group of 20 nations said monetary policy should remain accommodative for now in many advanced economies and pledged a coordinated push to boost growth by more than $2 trillion over the next five years.
The timing of stimulus pullback will depend on the outlook for prices and growth, finance ministers and central bank governors said in a statement after this weekend’s meeting in Sydney. The group will aim to lift collective gross domestic product by more than 2 percent above the trajectory implied by current policies.
“We agree the global economy still faces weaknesses in some areas of demand, and growth is still below the rates needed to get our citizens back into jobs and meet their aspirations for development,” the officials said. “Recent volatility in financial markets, high levels of public debt, continuing global imbalances and remaining vulnerabilities within some economies highlight that important challenges remain to be managed.”
Nations including South Africa, Brazil and India have seen their currencies rattled as the Federal Reserve begins to dial-back unprecedented stimulus measures, with emerging-market officials urging the U.S. to consider the spillover effects of its tapering. All central banks in the G-20 said today that they’re committed to carefully calibrated and communicated monetary policy, mindful of the effects on the global economy.
The language on carefully calibrated policies echoes a previous statement at the G-20 leaders summit in St. Petersburg, Russia in September.
“Emerging market nations’ concerns were clearly aired in the statement yet there is no indication the Fed will make the slightest change to its current policy approach,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney.
European Central Bank President Mario Draghi said while central banks shouldn’t ignore spillovers from their policies and could communicate more, they are bound by their mandates and it’s also up to emerging markets to attend to their own structural weaknesses.
“There was widespread agreement both from industrial countries and the emerging markets that we should make sure our actions are appropriately calibrated and we should worry about spillover effects,” Reserve Bank of India Governor Raghuram Rajan, who had warned before the meetings of a breakdown in global policy coordination due to tapering, said in an interview in Sydney today.
Strengthening in developed economies and a slowdown in growth in China, India, Brazil and elsewhere reverses the trend that had shaped global expansion since 2008. The U.S. and fellow industrial countries have put the onus on their emerging-nation counterparts to get their houses in order to withstand volatility, even as developing-market officials want policy calibration.
The MSCI Emerging Markets Index has lost 4.3 percent so far this year, its worst annual start since 2010.
The International Monetary Fund last week identified prolonged market turmoil in developing nations and deflation in the euro area as potential threats to a global economy it currently expects to grow 3.7 percent this year. That would be the most since 2011.
“Further action and international cooperation are necessary to promote a more robust global recovery -- one that is sustained and fosters healthy job creation -- and to counteract actual and potential risks,” IMF Managing Director Christine Lagarde said today.
The U.S., the U.K. and Japan’s economies are strengthening, there is “continued solid growth” in China and many emerging market nations, and resumption of expansion in the euro area, the G-20 said. An earlier draft version did not specifically mention China.
“Despite these recent improvements, the global economy remains far from achieving strong, sustainable, and balanced growth,” the G-20 said. “There is no room for complacency.”
As markets react to various policy transitions and country circumstances, asset prices and exchange rates adjust, and this might sometimes lead to excessive volatility that can be damaging to growth, the G-20 nations said in the statement.
“Exchange-rate flexibility can also facilitate the adjustment of our economies,” according to the G-20 statement. “Some economies may need to rebuild fiscal buffers where policy space has eroded. We will consistently communicate our actions to each other and to the public, and continue to cooperate on managing spillovers to other countries, and to ensure the continued effectiveness of global safety nets.”
The G-20 officials said they will develop new measures, while maintaining fiscal sustainability and financial sector stability, to “significantly raise” global growth and achieve its aim of increasing collective GDP in the next five years.
“To achieve this we will take concrete actions across the G-20, including to increase investment, lift employment and participation, enhance trade and promote competition, in addition to macroeconomic policies,” the officials said.