Japan Said to Push for ‘Crisis’ Language in G-7 Communiqueby
Bloomberg obtains copy of draft of G-7 statement on economy
Abe warned Thursday of risk of falling into Lehman-like crisis
Japan is seeking to add a warning that the global economy is at risk of "falling into a crisis" to the final Group of Seven leaders’ communique to be released Friday, according to a copy of a draft obtained by Bloomberg News.
The economy section of the draft statement outlines risk and calls for a mix of investment and policy tools to spur growth. It includes one line proposed by Japan that’s up for negotiation at the summit in central Japan.
“We recognize the risk of the global economy exceeding the normal economic cycle and falling into a crisis if we did not take appropriate policy responses in a timely manner," reads the Japanese suggestion.
It comes after Japanese Prime Minister Shinzo Abe on Thursday warned leaders there was a risk of the world economy falling into a crisis on the scale of the 2008 Lehman shock if appropriate policy measures weren’t taken. Abe and other leaders are grappling over the final wording of the communique that will outline calls for using fiscal tools, monetary policy and structural reform to stoke growth.
Abe has frequently said he would proceed with a planned increase in Japan’s sales tax in April 2017 unless there is an event on the scale of the Lehman shock or a major earthquake. He is expected to announce next week he is deferring the tax rise, Japanese media reported Thursday.
"The global recovery continues, but growth remains moderate and uneven, and since we last met downside risks to the global outlook have increased," the economy section of the draft begins. Weak demand and unaddressed structural problems are the "key factors weighing on actual and potential growth," the draft says, while non-economic shocks such as terrorism, refugees and geopolitical tensions "complicate the global economic environment."
The draft section does not refer to the risk of the U.K. voting next month to leave the European Union.
The Japanese foreign ministry declined to comment on the draft economy section. "The final negotiations on the G-7 Ise-Shima Summit Initiative are about how to describe the current risks to the world economy -- that is all we are focused on," Deputy Chief Cabinet Secretary Hiroshige Seko said earlier Thursday.
The draft accounts for "country-specific circumstances" and calls for "employing a more forceful and balanced policy mix in order to swiftly achieve a strong, sustainable and balanced growth pattern." The G-7 leaders "stand ready to deploy robust policies" to boost growth while "using all policy tools -- monetary, fiscal and structural."
Monetary policy alone can’t lead to strong, sustainable and balanced growth, the draft section said. Debt-to-gross domestic product ratios must stay on a sustainable path, with tax policy and public spending tailored to be "as growth-friendly as possible.”
The Ise-Shima summit comes a week after finance ministers and central bank governors who met in northern Japan were unable to reach consensus on any one direction, and settled on a vision that included a choose-your-own-path option for stoking growth. The finance chiefs didn’t issue a communique.
The balance between belt-tightening and investment has tilted at this meeting, with a Canadian election that replaced austerity advocate Stephen Harper -- an ally of Germany’s Angela Merkel and the U.K.’s David Cameron -- with Prime Minister Justin Trudeau, an avowed proponent of investment and expanded fiscal measures.
The draft communique takes aim at China, though not by name. It notes that "global excess capacity in industrial sectors, especially steel, is a pressing structural challenge with global implications." Japan on Thursday said G-7 leaders discussed Chinese oversupply, and steel generally, but stopped short of saying they talked about Chinese steel dumping.