Tokyo: World leaders meeting in Japan tangled over how to push the global economy toward growth amid an array of risks including geopolitical tensions, a slowdown in China and Britain’s potential exit from the European Union (EU).
The Group of Seven (G7) industrial nations — the US, Japan, Germany, the UK, France, Italy and Canada — sought a coordinated approach at a summit in central Japan amid discord over the best policy mix of fiscal spending, monetary stimulus or structural reforms.
G7 nations will use "all policy tools — monetary, fiscal and structural — individually and collectively to strengthen global demand and address supply constraints while continuing our efforts to put debt on a sustainable path,” the group said in a statement on Friday after the two-day meeting in Ise-Shima.
The show of comity disguised an undercurrent of dissent over how to create jobs and growth, whether through spending and stimulus measures championed by leaders like Japan’s Shinzo Abe and Canada’s Justin Trudeau, or an approach of budget discipline supported by looser labor markets and better competitiveness, the hallmark of German Chancellor Angela Merkel.
Regional differences played a role, as Asian economies feel the brunt of a Chinese slowdown, while the 19-member euro area struggles with seven years of crisis and a dearth of demand and the US economy revives.
"It is not entirely surprising that a coordinated response to an unevenly felt dynamic could not be reached at the G7 negotiating table,” Glenn Maguire, Asia-Pacific chief economist at Australia & New Zealand Banking Group in Singapore, said in an e-mail.
"Moreover, the G7 is obviously aware of the ‘announcement effect’ the official communique has,” he said. "In such a situation, warning of negative risks and sentiment can become self-fulfilling.”
Abe, the host, failed in his bid for the G7 to warn of the risk of a global economic crisis after making a presentation to other leaders, including US President Barack Obama, which showed an economy potentially veering into a crisis on the scale of the 2008 Lehman Brothers collapse.
Japan had pressed G7 leaders to note "the risk of the global economy exceeding the normal economic cycle and falling into a crisis, if we did not take appropriate policy responses in a timely manner." That phrase was scrapped.
"We are not pessimistic about the global economy, but if we are not clearly aware of the risks, we will not be able to take the appropriate measures,” Abe told reporters at a press conference in which he repeatedly referred to Lehman. "We as G7 leaders held a thorough debate on the world economy and agreed that we are facing a great risk."
Abe has frequently said he would proceed with a planned increase in Japan’s sales tax in April 2017 unless there is an event on the scale of Lehman or a major earthquake. He is expected to announce next week he is deferring the tax rise, Japanese media reported.
Non-member China loomed over the G7 talks. A slowdown in the world’s most populous nation, alongside a global steel glut, has spurred concerns among developed economies that turmoil there could send ructions across the globe.
"We want a good and thriving pace of economic growth for China,” Merkel said earlier on Friday. "China also has great structural challenges, for which we wish that China can tackle them, because that’s in all of our interest.”
The leaders added in an 11th-hour warning on the UK’s referendum to leave the European Union, saying a so-called Brexit would "reverse the trend towards greater global trade and investment and the jobs they create, and is a further serious risk to growth." The warning wasn’t included in a draft of the communique as of Thursday evening.
Further threats to the world economy include escalating geopolitical conflicts, terrorism and refugee flows, the communique said.
Leaders reaffirmed their commitment to market-determined exchange rates. They warned that "excess volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability."
Trade is a key driver of growth, the document said. It lauds the 12-nation Trans-Pacific Partnership (TPP) trade pact as "an important step forward" and called on each country to "complete its domestic process," while stopping short of a call to quickly ratify the agreement.
Final approval of the pact has faced delays in countries such as the US and Japan, while Canada has not committed to ratification.
Leaders said they’ll work toward an agreement in principle on the US-EU Transatlantic Trade and Investment Partnership as early as this year, while encouraging the EU and Canada to bring their trade pact into force as quickly as possible.