- Brexit has heightened focus on need for inclusive growth
- Multiple G-20 members are shifting toward fiscal support
Finance chiefs from the world’s biggest economies signaled escalating concern about a wave of anti-globalization sentiment that threatens core principles long embraced by the group.
Meeting in China one month after a shock decision by U.K voters to exit the European Union, finance ministers and central bankers from the Group of 20 put a stepped-up emphasis on fiscal and structural policies to boost growth, and renewed a pledge to promote inclusiveness. Treasury Secretary Jacob J. Lew, whose own country has seen millions of people embrace the protectionist calls of Republican presidential nominee Donald Trump, said Brexit had escalated the importance of inclusive economic expansion.
"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," International Monetary Fund Managing Director Christine Lagarde said in a statement after the two-day G-20 meeting ended Sunday. Her counterpart, World Bank President Jim Yong Kim, warned Friday that there was a very loud rejection of globalization in the West.
While no G-20 member promised any specific fresh action in Chengdu, many had already been taking steps in the run-up to the gathering. Japan is in the midst of compiling an extra budget, with calls from some lawmakers for support for lower-income households. Prime Minister Shinzo Abe has also called for bolstering wages of workers on temporary contracts.
In the epicenter of Brexit, Chancellor of the Exchequer Philip Hammond indicated openness to a more generous budget on July 22, when he told the BBC the U.K. could "reset fiscal policy" if necessary. For his part, Lew said the U.S. economy is in strong shape, and held off making any new commitments.
With some exceptions -- notably Germany -- the result is a reversal of years of antagonism over whether to pursue pro-growth policies versus reining in debt. Lew told reporters in Chengdu that there’s a broad consensus the world needs growth, not austerity. The need for inclusive growth was given prominence in the second paragraph of the G-20 communique.
‘At a Crossroads’
In a pile of documents left behind at the G-20 meetings was one with the title of being a "zero draft" of the leaders’ communique for the summit in Hangzhou Sept. 4-5, and it included some stark language: "The world economy stands at a crossroads," the paper dated July 15 said. "We will work to build an open world economy, reject protectionism, promote global trade and investment, ensuring broad-based public support for expanded growth in a globalized economy."
"If there’s one message coming out of this G-20 meeting it’s that they’re starting to get the message that electorates around the world aren’t happy with the way things have been proceeding," said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which manages more than $110 billion.
Hours after the G-20 meeting concluded, a further risk to the global trade order emerged, with Trump comments broadcast on NBC’s "Meet the Press." The candidate for president in the November election said that if the World Trade Organization tried to block his proposal to tax goods of U.S. companies that sent operations out of the U.S., “then we’re going to renegotiate or we’re going to pull out.”
China, the world’s second-biggest economy, has plenty of reason to ensure inclusive growth, as its slowing expansion risks eroding the income gains needed to spur consumption and services. The government has been pumping cheap credit into banks, companies and local governments, and in June alone an additional $244 billion in new credit flowed into the economy.
South Korea, Asia’s No. 4 economy, has unveiled an 11 trillion won ($9.7 billion) supplementary budget to support the jobs market. Canada is adding C$11 billion ($8.38 billion) in annual spending for the fiscal year that began April 1 and will run deficits totaling almost C$120 billion over six years.
At the G-20 itself, the group recommitted to keeping clear of competitive currency devaluations. Unlike at a Shanghai gathering in February, there was little focus on the yuan, which has seen much less volatility in recent months. In Beijing Sunday, People’s Bank of China Deputy Governor Chen Yulu said the central bank will work hard to keep the yuan stable against a basket of currencies.
"All forms of protectionism" will be resisted, the G-20 said. "The global economic recovery continues but remains weaker than desirable" and "the global economic environment is challenging and downside risks persist, highlighted by fluctuating commodity prices, and low inflation in many economies."
The group also said that "financial market volatility remains high, and geopolitical conflicts, terrorism, and refugee flows continue to complicate the global economic environment."
Even so, the G-20 signaled optimism with regard to managing any growth threats from Brexit. Members are "well positioned to proactively address the potential economic and financial consequences," they said. German Finance Minister Wolfgang Schaeuble said that despite some market volatility after Brexit, there’s been quite a lot of stabilization.
The G-20 sought again to de-emphasize the role of monetary policy, repeating past conclusions that such stimulus on its own cannot achieve balanced growth. That conclusion didn’t stop group members including India, Australia and South Korea from cutting interest rates since the February meeting.
Bank of Japan Governor Haruhiko Kuroda noted that monetary and fiscal efforts in combination can be effective in helping the economy. Speaking to reporters days before the BOJ’s July 28-29 policy meeting, he reiterated that he is prepared to step up stimulus if needed, while noting again that so-called helicopter money is prohibited.
The communique noted that overcapacity in industries like steel making are a challenge not just for trade, but also for workers, and require a collective global response. While no new mechanism for such talks was announced, Lew reiterated his backing for a multilateral effort to discuss steel capacity. China is already engaged in reforms to eliminate excesses in its old-line industries.
"After many years of sub-par growth in industrialized economies, and increasingly also in emerging markets, G-20 leaders are recognizing the risks of social cleavages and their potentially harmful economic consequences," said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. "More inclusive growth, protecting society’s most vulnerable, will increasingly be woven into economic policy."
Neumann anticipates measures including greater transfer payments to lower-income groups, additional job training, a more progressive tax structure, and spending plans that provide greater health care and old-age assistance.
Watch Next: G-20 Signal Globalization Anxiety
— With assistance by Rainer Buergin, Saleha Mohsin, Enda Curran, Yinan Zhao, Toru Fujioka, Jana Randow, and Raymond Colitt