G20 vows to boost fragile growth, nudges China on currency

GMT 18:37 2015 Saturday ,05 September

Arab Today, arab today G20 vows to boost fragile growth, nudges China on currency

Turkish PM Ahmet Davutoglu (2ndL)
Ankara - AFP

G20 finance ministers and central bank chiefs on Saturday pledged to act decisively to shore up stuttering global growth and to refrain from unsettling currency moves after China's controversial devaluation last month.

The economic supremos from the world's top 20 economies said in a communique after their two-day meeting in the Turkish capital Ankara that global growth was falling short of expectations, despite strengthening activity in some economies.

Their statement did not refer specifically to China but contained a clear pledge not to resort to competitive currency devaluations to give an unfair advantage to domestic exports.

"Global growth falls short of our expectations. We have pledged to take decisive action to keep the economic recovery on track and we are confident the global economic recovery will gain speed," the statement said.

The group vowed to "carefully calibrate and clearly communicate our actions... to minimise negative spillovers, mitigate uncertainty and promote transparency" as key global economies search for robust growth.

- 'Market exchange rates' -

The meeting came after financial markets worldwide were rattled by China's clouding growth prospects, drastic loss in value of the stock market and its sudden devaluation in August of the yuan.

In a signal to China to tread carefully in its foreign exchange policies, the G20 vowed to "refrain from competitive devaluations and resist all forms of protectionism."

"We reiterate our commitment to move toward more market-determined exchange rate systems and exchange rate flexibility... and avoid persistent exchange rate misalignments," it said.

US Treasury Secretary Jacob Lew pressed his Chinese counterpart on the sidelines of the meeting to improve communication of economic policy and refrain from competitive devaluations.

In an unusually strongly-worded statement, a US treasury spokesperson said Lew also noted that it was important for China to signal that it will allow market pressures to drive the yuan "up as well as down."

"It would be a very bad thing for the global economy if we get into a pattern of competitive devaluation," a senior US treasury official told reporters.

The official said there had been "detailed discussions" but the group was agreed "competitive devaluation is a threat that has to be guarded against."

Meanwhile, a long shadow has been cast by uncertainty over the monetary policy of the Fed, which has held its benchmark federal funds rate at the zero level since 2008 to support the economy's recovery from a recession.

While economists say the current robustness of the US economy could justify a rate hike, the so-called lift-off from zero would suck up liquidity badly need by troubled emerging markets.

Key emerging markets are already in severe trouble, in particular Brazil and Russia, which are both in recession.

The statement said the G20 noted "that in line with the improving economic outlook, monetary policy tightening is more likely in some advanced economies."

Host Turkey, whose ambitious President Recep Tayyip Erdogan wants to make his country a top 10 global economy by 2023, is another key emerging market hitting choppy waters as the impressive growth figures of past years slip away.

The Turkish lira on Friday hit a new historic low against the dollar, smashing through the three-to-the dollar ceiling, amid continued political uncertainty after inconclusive June 7 elections.

- 'US can't be only engine' -

The statement called on governments and central banks not to over-use interest rates as a tool for boosting economic activity and instead implement fiscal policies to support growth and job creation.

"Overreliance on monetary policy will not lead to balanced growth," the communique said.

In contrast to previous meetings, the gathering was not dominated by the crisis in the euro zone, after the deal over Greece's third bailout soothed nerves.

The US treasury official hailed signs of stronger growth in Europe but said "it would be a good thing if it was growing in a stronger way than it is."

While there was "steady and strong growth" in the US economy, the United States "cannot be the only engine of growth," said the official.

The G20 has also taken up the issue of migration amid the alarm in Europe triggered by the horrifying image of a three-year-old Syrian refugee who drowned off Turkey.

Angel Gurria, the head of the Organisation for Economic Co-operation and Development, emphasised at the meeting that "well-managed" migration could bring benefits to developed economies.

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