G20 group must stand together in preparation for downside risks

The Yomiuri ShimbunMajor nations must tenaciously look for ways to restore their solidarity.

With the aggravated U.S.-China trade friction in mind, among others, the meeting in Fukuoka of finance ministers and central bank governors from the Group of 20 major economies has adopted a joint communique stating that “trade and geopolitical tensions have intensified.”

In reference to the global economy, the statement said “risks remain tilted to the downside.” Based on this acknowledgment, it expressed the group’s determination to “stand ready to take further action” in preparation for a further economic slowdown.

The G20 group can be praised for sharing a sense of urgency for the time being.

Despite favorable trends in the current world economy, the central banks in India and Australia have hurriedly decided to lower interest rates. The European Central Bank has postponed the timing of an interest rate increase for six months. All this seems to show they are increasingly wary about future prospects.

Last week’s sharp rise in U.S. stock prices was mainly due to short-term factors, including a sense of hope for a reduction in interest rates by the Federal Reserve Board. However, the medium- and long-term outlooks are dire.

According to an estimate by the International Monetary Fund, the world’s gross domestic product will likely fall by 0.5 percent in 2020, if the U.S.-China trade friction becomes even more intense. This is combined with the problem of Britain’s exit from the European Union and an even more intense situation with Iran.

Be ready for anything

It is important for pertinent governments and central banks to carefully analyze economic trends, and make necessary preparations so they can implement each and every policy-based measure in an emergency.

The latest G20 statement did not include the conventionally used phrase “fight protectionism.” It is regrettable the G20 group was not able to issue a clear message in this respect.

During the meeting, many countries voiced concerns about the trade friction. The United States needs to listen carefully to such criticism and realize the adverse economic impact resulting from its self-righteous behavior.

The G20 gathering also discussed rectifying the global economic imbalance.

A current account balance can be influenced by various factors, including domestic and overseas policies as well as economic conditions. The communique said, “In the spirit of enhancing cooperation, we ... address excessive imbalances.” This seems to be aimed at restraining the United States, which solely views its trade deficit as a problem.

There are many problems on the Chinese side, too.

If it does not rectify its policy of giving state-owned enterprises excessively preferential treatment through subsidies, China’s arguments are not persuasive, however firmly it asserts the importance of free trade.

In the aftermath of the 2008 collapse of Lehman Brothers, the G20 members joined hands in responding to the global financial crisis. There is less room now than in those days for each nation to implement fiscal and financial policy measures. Unless it overcomes the conflict, the group will not be able to meet a new crisis.

(From The Yomiuri Shimbun, June 11, 2019)Speech


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