Saturday, September 7, 2013
G-20 To Watch Impact Of U.S. Monetary Easing Scaledown
ST. PETERSBURG, Russia (Nikkei)--Recognizing the downside risk facing the global economy, Group of 20 leaders agreed to monitor how the gradual withdrawal of American quantitative easing will affect emerging markets.
- G-20 leaders outside the Konstantin Palace in St. Petersburg.
"Private demand has strengthened in the U.S. and growth has picked up in Japan and the U.K.," a joint declaration released Friday states. But the document also mentions "slower growth in some emerging market economies" as a challenge to the global economy.
In particular, the G-20 leaders expressed concerns that financial market volatility has increased in the last few months. They pledged to closely monitor how the tapering of U.S. monetary easing affects the entire world. They also reaffirmed that competitive currency devaluation should be avoided.
Speculation that the U.S. could decide to throttle back quantitative easing as early as this month has sent currencies and stocks sharply down in such G-20 members as India and Brazil. With the escalating civil war in Syria further unnerving investors, a focal point of the summit was whether the leaders could come together to address the rapid exodus of money from emerging markets.
Despite the talk of cooperation in the declaration, the countries were not all on the same page. German Chancellor Angela Merkel said monetary easing needs to be scaled back gradually. But Indonesian Finance Minister Chatib Basri argued that emerging economies are being hit by an outflow of money. And the issues surrounding China's financial system were not even discussed, since Chinese President Xi Jinping declared the problem manageable.
Acknowledging that the global economic recovery is too weak, the G-20 leaders agreed that key countries should shift focus from fiscal consolidation to economic growth. Prime Minister Shinzo Abe explained that Japan places weight on growth and ending deflation. He did not touch on the planned consumption tax hike, a step toward rebuilding fiscal health.
But Finance Minister Taro Aso told reporters after the summit that Japan should assure global investors by raising the consumption tax.
"The pain would be very severe should government bonds plunge and stock prices fall sharply," he said, citing the perils of losing fiscal discipline.
(The Nikkei, Sept. 7 morning edition)