(Reuters) – Finance officials from the Group of 20 leading economies sketched an uncertain outlook for global growth on Tuesday and vowed to use monetary and fiscal policy if needed to stem any risk of stagnation.
The United States urged nations at the G20 meeting not to resort to currency devaluations to boost exports, an indication Washington is starting to feel wary of its allies manipulating their exchange rates to support growth.
U.S. Treasury Secretary Jack Lew signaled that Germany and others in Europe should engage in deficit spending, saying it would not be a “good ride” for the global economy if only the United States was strong.
“In Europe, there’s a need for more fiscal policy. There’s a demand shortfall. Different countries have different amount of fiscal space. With the fiscal space, they need to use it to grow demand,” he told reporters on the sidelines of the meeting.
“I’ve used the metaphor of a car that has one tire fully inflated, and the other three not so much. It’s not going to be a good ride for the global economy if the one strong wheel is the United States.”
The meeting of finance ministers and central bankers in Istanbul comes at a difficult time, with major economies running at different speeds, monetary policies diverging and Greece casting a new shadow over Europe.
Germany, which boasts a record current account surplus, has been unbending in the face of G20 calls to spend more and boost demand. The final G20 communique also pledged to put debt as a share of output on a sustainable path.
German Finance Minister Wolfgang Schaeuble nonetheless gave a more upbeat view of the European outlook, saying forecasts for global growth were improving, and not just because of a strengthening in activity in the United States.
“In parallel we have a certain strengthening of the growth forecasts also in Europe,” he said. “In summary, we are on a course which is not bad.”
The communique noted slow growth in the euro area and Japan and said some emerging market economies were slowing down. It said the European Central Bank’s quantitative easing, which has raised German concern, would further support recovery in the euro area.
A sharp decline in oil prices would also give some boost to global growth, it said.
The G20 officials appeared to reject a Turkish proposal to set countries specific investment targets to spur demand.
In his meetings in Istanbul, Lew underlined the need to stick to existing commitments on exchange rate policy, a Treasury official said, pledges which include refraining from competitive exchange rate devaluations.
“Secretary Lew strongly emphasized … that we are highly focused on ensuring that U.S. workers and firms play on a level playing field and no country should use their exchange rate to increase exports,” the official said.
The U.S. Federal Reserve looks set to raise interest rates this year, a stark contrast to huge money printing program by the European Central Bank and Bank of Japan.
A by-product of that is the dollar being driven higher. There has generally been an acceptance in Washington that a weaker euro and yen is an inevitable consequence of actions to revive moribund economies, something the United States has consistently called for.
ECB Governing Council member Christian Noyer said he saw no sign of a currency war building and that the meeting had shown a common understanding of the need for monetary policy easing.
In the past there were suspicions of competitive devaluations but those suspicions were gone, Noyer, who is also governor of the Bank of France, told reporters.