Some Group of 20 countries may need more breathing room to meet their deficit targets with the global economy struggling to pick up steam, Canadian Finance Minister Joe Oliver said.
“I don’t think this is the time to abandon prudence, but there has to be some flexibility over the shorter term,” Oliver said in a Sept. 17 interview with Bloomberg News in Ottawa. Policy makers need to avoid Europe “going into a deflationary spiral,” he said.
Oliver’s remarks come as G-20 finance ministers and central bankers prepare to meet in Cairns, Australia this weekend. His position marks a more conciliatory approach than his predecessor, Jim Flaherty, who said last year the G-20 risked losing its credibility if countries didn’t commit to hard targets for reducing their deficits.
Oliver, 74, said Europe’s stagnating economy is his biggest concern, though weak growth in Japan and a slowdown in China are also troubling. “The global economy is not growing as fast as anticipated,” Oliver said.
“That will be a crucial discussion, about how you balance the short-term need in some economies for stimulus and the intermediate and longer-term need to be fiscally prudent.”
G-20 policy makers will discuss the merits of using government spending and tax powers to give an immediate boost to a sluggish expansion, amid concern monetary easing may no longer be sufficient to reflate weakening economies in Europe and Asia.
Policy Mix
The debate at the G-20 reflects growing concern that the world’s largest economies don’t have the appropriate policy mix to combat slowing growth, particularly in Europe, with too much focus on fiscal consolidation and an overreliance on loose monetary policy.
While G-20 nations agreed in February to take measures to boost the collective gross domestic product by 2 percent over five years, U.S. Treasury Secretary Jacob J. Lew and other officials have emphasized that more needs to be done to bolster demand in the near term, including investing in infrastructure.
“It’s quite obvious that some of these issues really do require more attention and more discussion,” Lew said Sept. 17 at the University of California Los Angeles before departing for Cairns. “There is no question that there is a problem with growth and demand in many parts of the world.”
Inflation in the 18-nation euro area was 0.4 percent in August, holding at the weakest pace since 2009 and a fraction of the European Central Bank’s goal of just under 2 percent.
ECB President Mario Draghi has warned of a deflationary spiral of falling prices and households postponing spending.
ECB Cuts
Draghi has cut interest rates twice since June, announced targeted long-term loans for banks and said the central bank will start buying assets. Investors are watching to see if policy makers will go further and implement broad-based sovereign-debt purchases, or quantitative easing.
The People’s Bank of China is injecting 500 billion yuan ($81 billion) into the nation’s largest banks to address weakening growth, according to a government official familiar with the matter.
Bank of Japan Governor Haruhiko Kuroda said this month he’ll do what’s needed to achieve his inflation goal. Australian Treasurer Joe Hockey, who is chairing this week’s meeting, has put an emphasis on larger reforms to achieve the 2 percent target.
“Fiscal policy isn’t going to deliver, monetary policy is not going to deliver what we need over the medium term,” Hockey said. “It’s only through reform, and it has to be hard reform.”
Policy List
Along with India, Canada co-chairs the G-20 working group on developing policies to promote strong, sustainable and balanced economic growth. Oliver said countries have been submitting policies to the working group that will help them meet the 2 percent growth commitment.
G-20 leaders are expected to ratify the policies at their summit in Brisbane, Australia in November. “We all have obligations, and there’s been a lot of work done by officials, examining the submissions by each of the countries,” Oliver said before departing for Cairns.
Countries are taking the policies seriously, he said, adding “the list, if implemented, will get us very close to that 2 percent.”
Oliver declined to give details about what would be on Canada’s list, saying the policies may be announced in next year’s budget or the next fiscal update, expected in October or November.
Canadian Policies
“It’s jobs, it’s trade, it’s infrastructure,” Oliver said. “We talked about telecommunications specifically as something kind of new. It’s productivity, research and development. Those are the things we’re doing.”
The economic recovery has faltered since the February meeting in Sydney, with Europe showing signs of slipping into deflation, Japan’s revival blunted by a sales tax increase in April and China’s 7.5 percent growth target for 2014 becoming harder to attain.
Growth in the G-20 slipped in the second quarter to 3.2 percent from a year earlier, down from 3.4 percent in the first quarter.
Divisions over the pace of budget cutting has been a source of tension for years at the G-20. Within the G-7, Canada, Germany and the U.K. have been the most vociferous advocates of reducing debt and deficits, while the U.S. has consistently warned against the perils of too much fiscal consolidation.
bloomberg.com
“I don’t think this is the time to abandon prudence, but there has to be some flexibility over the shorter term,” Oliver said in a Sept. 17 interview with Bloomberg News in Ottawa. Policy makers need to avoid Europe “going into a deflationary spiral,” he said.
Oliver’s remarks come as G-20 finance ministers and central bankers prepare to meet in Cairns, Australia this weekend. His position marks a more conciliatory approach than his predecessor, Jim Flaherty, who said last year the G-20 risked losing its credibility if countries didn’t commit to hard targets for reducing their deficits.
Oliver, 74, said Europe’s stagnating economy is his biggest concern, though weak growth in Japan and a slowdown in China are also troubling. “The global economy is not growing as fast as anticipated,” Oliver said.
“That will be a crucial discussion, about how you balance the short-term need in some economies for stimulus and the intermediate and longer-term need to be fiscally prudent.”
G-20 policy makers will discuss the merits of using government spending and tax powers to give an immediate boost to a sluggish expansion, amid concern monetary easing may no longer be sufficient to reflate weakening economies in Europe and Asia.
Policy Mix
The debate at the G-20 reflects growing concern that the world’s largest economies don’t have the appropriate policy mix to combat slowing growth, particularly in Europe, with too much focus on fiscal consolidation and an overreliance on loose monetary policy.
While G-20 nations agreed in February to take measures to boost the collective gross domestic product by 2 percent over five years, U.S. Treasury Secretary Jacob J. Lew and other officials have emphasized that more needs to be done to bolster demand in the near term, including investing in infrastructure.
“It’s quite obvious that some of these issues really do require more attention and more discussion,” Lew said Sept. 17 at the University of California Los Angeles before departing for Cairns. “There is no question that there is a problem with growth and demand in many parts of the world.”
Inflation in the 18-nation euro area was 0.4 percent in August, holding at the weakest pace since 2009 and a fraction of the European Central Bank’s goal of just under 2 percent.
ECB President Mario Draghi has warned of a deflationary spiral of falling prices and households postponing spending.
ECB Cuts
Draghi has cut interest rates twice since June, announced targeted long-term loans for banks and said the central bank will start buying assets. Investors are watching to see if policy makers will go further and implement broad-based sovereign-debt purchases, or quantitative easing.
The People’s Bank of China is injecting 500 billion yuan ($81 billion) into the nation’s largest banks to address weakening growth, according to a government official familiar with the matter.
Bank of Japan Governor Haruhiko Kuroda said this month he’ll do what’s needed to achieve his inflation goal. Australian Treasurer Joe Hockey, who is chairing this week’s meeting, has put an emphasis on larger reforms to achieve the 2 percent target.
“Fiscal policy isn’t going to deliver, monetary policy is not going to deliver what we need over the medium term,” Hockey said. “It’s only through reform, and it has to be hard reform.”
Policy List
Along with India, Canada co-chairs the G-20 working group on developing policies to promote strong, sustainable and balanced economic growth. Oliver said countries have been submitting policies to the working group that will help them meet the 2 percent growth commitment.
G-20 leaders are expected to ratify the policies at their summit in Brisbane, Australia in November. “We all have obligations, and there’s been a lot of work done by officials, examining the submissions by each of the countries,” Oliver said before departing for Cairns.
Countries are taking the policies seriously, he said, adding “the list, if implemented, will get us very close to that 2 percent.”
Oliver declined to give details about what would be on Canada’s list, saying the policies may be announced in next year’s budget or the next fiscal update, expected in October or November.
Canadian Policies
“It’s jobs, it’s trade, it’s infrastructure,” Oliver said. “We talked about telecommunications specifically as something kind of new. It’s productivity, research and development. Those are the things we’re doing.”
The economic recovery has faltered since the February meeting in Sydney, with Europe showing signs of slipping into deflation, Japan’s revival blunted by a sales tax increase in April and China’s 7.5 percent growth target for 2014 becoming harder to attain.
Growth in the G-20 slipped in the second quarter to 3.2 percent from a year earlier, down from 3.4 percent in the first quarter.
Divisions over the pace of budget cutting has been a source of tension for years at the G-20. Within the G-7, Canada, Germany and the U.K. have been the most vociferous advocates of reducing debt and deficits, while the U.S. has consistently warned against the perils of too much fiscal consolidation.
bloomberg.com
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