Global economy threats prompt cautious G-7 pledge on fiscal aid

Global economy threats prompt cautious G-7 pledge on fiscal aid
Group of Seven finance chiefs acknowledged gathering threats to the global economy and gave a cautious pledge to provide fiscal support if those dangers materialize.

After a two-day meeting in Chantilly, France, finance ministers and central bankers declared risks for the global economy remain “tilted to the downside,” even if growth is stabilizing and there should be a moderate pickup next year. That’s a later timeline for improvement than envisioned at the Group of 20 summit in Osaka last month.

“Fiscal policy should be flexible and growth-friendly, while rebuilding buffers where needed,” according to a summary of the talks prepared by the French G-7 presidency. “Monetary policy will continue to support economic activity, while remaining mindful of financial stability and recognizing that monetary policy alone cannot address all economic challenges.”

The focus on flexibility for governments and limits for central banks echoes a drumbeat in favour of loosening the purse strings in major economies. After years of expansive policy, monetary authorities have lost ammunition, while persistent trade tensions are threatening to weaken momentum further.

European Woes

Europe is suffering from a more marked slowdown as the U.S. economy is supported by a significant budget deficit, Bank of France Governor Francois Villeroy de Galhau said. Within Europe, countries exposed to a trade slowdown are lagging even more.

“Monetary policies can do a lot but they can’t do everything confronted with the slowdown and they can’t perform miracles,” Villeroy said after the meeting. “It is essential that there are also the other instruments of economic policy: structural reforms, and of course fiscal policies where there is possible space.”

Not everyone shares his urgency.

“If you do something now, it means the arsenal would be exhausted,” German Finance Minister Olaf Scholz told reporters after the meeting when asked about stimulus.

France’s Finance Minister Bruno Le Maire is insistent that the euro area needed stronger economic momentum and that countries needed to step up to make this happen.

“The key question for the euro zone is the lack of growth,” he told Bloomberg Television in an interview. “All the 19 members of the euro zone should think about the possible tools they might use to feed growth.”

Finance chiefs avoided having to responding to U.S. President Donald Trump’s complaints about the strong dollar and his suggestion that other countries may be strategically weakening currencies. In the summary of proceedings in Chantilly, they simply reiterated commitments previously made on exchange rates, with the aim to support global growth.
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