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Tags: Global Finance | Economic | Risks | Warnings

Global Finance Heads Said to Warn of Mounting Economic Risks

Saturday, 20 September 2014 10:16 AM

Group of 20 finance chiefs will warn that risks to the global economy have increased in recent months, an official said, citing the latest draft of a communique due to be released Sunday.

Finance ministers and central bank governors meeting in Cairns, Australia, will acknowledge in the statement that the outlook has become more negative, amid a weak global economy burdened by uneven growth among countries, the official from a G-20 nation said, asking not to be identified because the document hasn’t been made public.

The global economic recovery has faltered since a February G-20 meeting in Sydney, with Europe showing signs of slipping into deflation, Japan’s revival blunted by a sales tax increase in April and China’s 7.5 percent growth target for 2014 becoming harder to attain. Officials in the U.S. and Canada have said some nations need to take more immediate steps to boost demand as the group discusses longer-term measures to lift economic output.

G-20 economies have submitted individual plans to boost gross domestic product by an additional 2 percent over five years, a goal the group committed to in February.

The group will say in their statement that measures proposed so far will boost GDP by 1.8 percent. Members will commit to additional action to meet their target ahead of a summit of G-20 leaders in Brisbane, Australia, in November, the official said.

Additional Stimulus

Some European countries should consider additional fiscal measures to bolster growth, even if they temporarily delay efforts to shrink their budget deficits, Canadian Finance Minister Joe Oliver said. U.S. Treasury Secretary Jacob J. Lew said in prepared remarks yesterday that the global economy continues to underperform, particularly Europe and Japan.

“More work is needed to achieve faster and more balanced growth, to boost demand especially in surplus countries, and to promote employment,” Lew said.

World Bank President Jim Yong Kim said in Sydney yesterday that the International Monetary Fund and Organization for Economic Cooperation and Development have suggested that all the efforts on the table so far to meet the target add up to “about 1.6 percent growth.”

At the February meeting, the group pledged to continue implementing fiscal strategies in a flexible manner, taking into account near-term economic conditions, while putting debt on a sustainable path. They also highlighted the benefits of exchange-rate flexibility.

Currency Language

The statement tomorrow will also reiterate language on fiscal policy and foreign exchange from previous statements, the official from the G-20 nation said.

The U.S. dollar has climbed as the Federal Reserve edges closer to its first interest-rate increase since 2006, while easing by the European Central Bank and the Bank of Japan are weighing on the yen and euro.

Lew renewed a call for member nations to avoid currency intervention in a bid to gain a competitive edge. He told South Korean Finance Minister Choi Kyung Hwan that countries must meet “commitments to move toward market- determined exchange rates.”

Divergent monetary policies “have the risk of increasing uncertainties in global financial markets,” Choi said in an interview today. Volatile foreign-capital flows “could also have an impact on the foreign exchange rates,” he said.

Asset Valuation

G-20 members are also concerned over asset valuation due to risk taking, another official from a G-20 economy said late Friday, citing a draft of the communique.

German Finance Minister Wolfgang Schaeuble told the G-20 meeting today that expansive fiscal and monetary policies could risk creating a bubble in equity and property markets, according to a German delegation official, who briefed reporters on condition of anonymity in line with policy.

Investors are becoming complacent about risks in financial markets as loose monetary policy spurs a search for yield, the Financial Stability Board said Sept. 18.

The MSCI World Index of global developed-market equities touched 16.25 times estimated earnings this month, the highest since December 2009, according to data compiled by Bloomberg.

Investors may be taking excessive risks and abruptly change course, particularly with the Fed moving closer to raising interest rates, IMF staff said in a note to G-20 officials this week. Money keeps flowing into stocks and bonds even in markets where growth is weakening or the recovery isn’t clear, raising concerns that investors are underestimating credit risks, according to the report.

© Copyright 2022 Bloomberg News. All rights reserved.

Group of 20 finance chiefs will warn that risks to the global economy have increased in recent months, an official said, citing the latest draft of a communique due to be released Sunday.
Global Finance, Economic, Risks, Warnings
Saturday, 20 September 2014 10:16 AM
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