Striking Coherent G-7 Growth Plan Is Challenging, Morneau Says

  • Canada is leading the way in the G-7 with fiscal stimulus
  • Getting a coherent global response is challenging, he says

While Canada is pushing for greater fiscal spending to drive global growth, it won’t urge Japan and other Group of Seven nations to follow its own specific measures, Canadian Finance Minister Bill Morneau said.

Canada is pushing deeper into deficit in a bid to stoke growth and believes its floating exchange rate is a key strength of its economy, Morneau said Thursday in a Bloomberg TV interview in Tokyo.

Canada will stop short, however, of pushing that prescription on G-7 colleagues as finance ministers and central bank governors meet in Sendai, instead taking a hands-off approach by simply preaching the virtues of Canada’s plan, Morneau said. G-7 leaders agree on many of the risks to growth but it’s up to each country to set their own policy, he said.

"Our best way to be part of the discussion is by saying here’s what we can do in our economy," Morneau said. "Our fiscal situation is not the same as Japan’s, so for me to prescribe for Japan to do the same things we’re doing would be going a bit far."

Stimulus Divide

Morneau, Bank of Canada Governor Stephen Poloz and and their G-7 counterparts are gathering in Japan. Poloz has welcomed the Trudeau budget and expanded fiscal measures.

While Canada joins Japan and the U.S. in calling for more stimulus, Germany is particularly critical of this. Morneau downplayed the tensions, saying G-7 leaders see eye-to-eye on many issues in the global economy while acknowledging a "coherent" approach among the seven economies would be difficult to achieve.

"We all recognize global growth is challenged, we all recognize the high level of volatility. We all recognize some demographic challenges we’re facing," Morneau said, stressing that each country has its own specific circumstances.

"I think there is a sense that monetary policy can’t have as big of an impact as it could have had a decade ago, meaning we are going to need to think about structural reforms, we’re going to have to think about fiscal measures that can make a difference. Getting to something that looks coherent internationally, it’s a challenge, but I think we’re on a path and we’re going to be helpful on that path."

Floating Currency

Morneau declined to wade into what measures Japan should or should not take on its currency, saying the issue isn’t on the agenda at the G-7 but that Canada’s economy relies on its floating exchange rate as an economic safety valve.

"I don’t think that we’ll be sitting at the G-7 table and talking specifically about currencies. I think what we will be talking about is the fact that working together is helpful," he said.

Canada’s exchange rate has been an "effective mechanism" during a commodity price downturn, Morneau said, but Japan’s situation is very different.

"We recognize that, for us, a floating exchange rate is critically important to our success. It provides us with an opportunity to appropriately deal with other countries. I don’t think we’re going to be prescriptive to other countries."

Brexit Risk

G-7 nations continue to face obvious downside risk to growth, Morneau said, and the issue will be discussed as ministers meet.

"Brexit is, of course, a risk to growth. We’ve seen the changing nature of the Chinese economy has changed their growth trajectory. So there are really multiple risks to growth we’ll talk about," he said. "What we’ll be thinking about from our perspective is the long-term things we can do to improve our growth trajectory against what those inevitable external challenges are going to be."

Canada is leveraging pension funds and private investors in a bid to accelerate infrastructure projects and believes that model could also be helpful for G-7 counterparts, Morneau said. "I think those are the kinds of things we can talk about around the G-7 table that might have a real impact," he said.

Canada Budget

Morneau, a former private sector executive and first-term lawmaker, is attending his first G-7 summit as Canada’s finance minister. He unveiled his debut budget two months ago, pushing the country into deficit in a bid to stroke growth amid an oil price shock. The budget included nearly C$120 billion ($92 billion) in deficits over six years, a shift for a country with relatively low debt load versus of G-7 nations.

It comes as the most recent figures show Canada in a sizable surplus for the first 11 months of the fiscal year that ended in March, though Morneau has said Canada will finish 2015-2016 in the red. Canada, under first-year Prime Minister Justin Trudeau, has called for world leaders to do more with fiscal policy to stoke growth and take pressure off central bankers as monetary policy grows less effective.

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