Financial leaders from the Group of 20 major economies scrambled on Friday for a way to keep global growth from stalling amid concerns about a drop-off in international trade and the waning effectiveness of loose monetary policy.
The G20 gathering, the highlight of the International Monetary Fund and World Bank spring meetings in Washington, came amid growing pressure on richer nations to boost infrastructure spending, deregulate industries and spur employment.
Earlier this week the IMF cut its 2016 growth forecast for the world economy, the fourth such move in less than a year.
In a statement to the G20 on Thursday night, Indian Finance Minister Arun Jaitley said governments could not continue relying on central banks to take the lead in spurring growth and should consider boosting spending.
“We feel that the efficacy of monetary policy instruments has reached its limits and that its pass-through has not been seamless,” Jaitley said. “The time is ripe for a re-evaluation of the fiscal policy space, with a greater focus placed on public investment.”
Although India is one of the brightest stars of the world economy, with the IMF predicting 7.5 percent growth this year, Jaitley warned that the global recovery was fragile and could easily be derailed by weak demand, tighter financial markets, softening trade and volatile capital flows.
“We, therefore, need to articulate an effective and tangible policy response to revive the trade engine of the global economy. Countries must avoid trade protectionist measures, and refrain from competitive devaluations,” he said.
But Jaitley’s currency views appeared at odds with those of Japanese officials, who expressed concerns about increases in the value of the yen, which recently hit a 17-month high against the dollar.
Japanese Finance Minister Taro Aso told reporters late on Thursday that he stressed those concerns in a meeting with U.S. Treasury Secretary Jack Lew, a sign that currency issues would be high on the list of the G20’s priorities. “I told (Lew) that excessive volatility and disorderly currency moves would have a negative impact on the economy. I also expressed deep concern over recent one-sided moves in the currency market,” Aso said.
Bank of Japan Governor Haruhiko Kuroda also described the yen’s ascent so far this year as “excessive,” the first time he had referred to the currency move in such a way.
A U.S. Treasury spokeswoman said that Lew, in a meeting on Thursday with Chinese Finance Minister Lou Jiwei, emphasized the need for China to transition to a market-determined exchange rate and “to refrain from competitive currency devaluations.”
China’s economic slowdown has slashed demand for commodities and components worldwide, causing spillovers to emerging markets and advanced economies alike. A shock devaluation of the yuan last August and further declines earlier this year sparked financial market turmoil and worries about further devaluations.
People’s Bank of China Deputy Governor Yi Gang on Thursday offered some reassuring words that Chinese economic growth would be in line with IMF estimates of 7.5 percent growth.
He also said that China’s central bank did not want to see an “overshoot” in its currency, without being specific about the direction.
Apart from worries about China’s economy, policymakers this week also have expressed heightened fears that a potential exit by Britain from the European Union in a June referendum could derail Europe’s shaky economic recovery and cause a further slowdown in global growth.