Monday, July 22, 2013

G20 vows to put growth before debt reductions

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International Monetary Fund (IMF) Managing Director Christine Lagarde (R) talks to Mexican Central Bank governor Agustin Carstens as they participate in the G20 finance ministers and central bank governors family photo in Moscow, July 20, 2013. The Group of 20 nations put growth ahead of austerity as it seeks to rebalance a multi-speed global economy, pledging to shift policy carefully so that recovery is not derailed by volatile financial markets. The finance ministers and central bank governors meeting in Moscow on Saturday will put the finishing touches to a joint communique that delegates said was not changed after they met for dinner on Friday night. REUTERS/Grigory Dukor (RUSSIA - Tags: BUSINESS POLITICS)

Lidia Kelly and Jan Strupczewski Moscow

The Group of 20 (G20) nations, including South Africa, pledged on Saturday to put growth before austerity, seeking to revive a global economy that ?remains too weak? and adjusting stimulus policies with care so that recovery is not derailed by volatile financial markets.

Finance ministers and central bankers signed off on a communiqu? that acknowledged the benefits of expansive policies in the US and Japan but highlighted the recession in the euro zone and a slowdown in emerging markets.

?While our policy actions have contributed to contain downside risks, those still remain elevated,? the statement said. ?There has been an increase in financial market volatility and a tightening of conditions.?

Indications that the US Federal Reserve would scale back its monetary stimulus dominated the two-day talks in Moscow, with emerging markets most concerned by a resulting sell-off in stocks and bonds, and a flight to the dollar.

Host Russia said G20 policymakers had soft-pedalled on goals to cut government debt in favour of a focus on growth and how to exit from policies of central bank stimulus with a minimum of turmoil.

G20 ?colleagues have not made the decision to take responsibility to lower the deficits and debts by 2016?, Finance Minister Anton Siluanov said. ?Some people thought that first you need to ensure economic growth.?

While the US recovery is gaining traction, China?s export motor is sputtering, Japan?s bid to break out of deflation has not reached escape velocity, and demand in the euro zone is too weak to sustain a job-creating recovery.

Officials backed an action plan to boost jobs and growth, while rebalancing global demand and debt. The plan will be ready for a G20 leaders? summit in September.

?We remain mindful of the risks and unintended negative side effects of extended periods of monetary easing,? the statement said.

?Future changes to monetary policy settings will continue to be carefully calibrated and clearly communicated.?

In return for its pledge to broadcast its monetary policy intentions clearly, Washington managed to ensure that the text contained no binding fiscal targets, saying that budget consolidation should be ?calibrated? to economic conditions.

Sources said Germany was less assertive than before over commitments to reduce borrowing to follow on from a deal struck in Toronto in 2010, with the improving US economy adding weight to Washington?s call to focus on growth.

The crisis in the euro zone periphery has been exacerbated by capital outflows, and the communiqu? pledged to move ?decisively? with reforms to create a banking union in Europe that could revive cross-border lending.

The International Monetary Fund warned that turbulence on global markets could deepen, while growth could be lower than expected due to stagnation in the euro zone and slowdown risks in the developing world.

?Global economic conditions remain challenging, growth is too weak, unemployment is too high and the recovery is too fragile,? managing director Christine Lagarde said. ?So more work is needed to improve this situation.?

The G20 accounts for 90 percent of the world economy and two-thirds of its population, many living in emerging economies, at greatest risk of a reversal of capital inflows that have been one of the side effects of the Fed stimulus. ? Reuters


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