Britain’s vote to leave the European Union heightens risks for the world economy, finance chiefs from the G20 group of leading countries said Sunday (24 July), vowing to use “all policy tools” to boost growth.
The outcome of June’s referendum “adds to the uncertainty in the global economy”, they said in a communique after a meeting of central bankers and ministers in the Chinese city of Chengdu.
But they insisted that G20 countries were “well positioned to proactively address the potential economic and financial consequences” of the vote, adding: “In the future, we hope to see the UK as a close partner of the EU.”
“In light of recent developments, we reiterate our determination to use all policy tools — monetary, fiscal and structural — individually and collectively to achieve our goal of strong, sustainable, balanced and inclusive growth,” said the communique, repeating a pledge from an earlier meeting in Shanghai in February.
But it called for “inclusive growth” to bring in those left out of economic prosperity.
Fiscally rigorous Germany, in particular, is reluctant to endorse the use of government spending to boost growth, seeing it as ineffective.
“It would be a mistake to think about the choice of tools as being either/or when it comes to structural reforms or using fiscal space,” said US Treasury Secretary Jacob Lew. “The two go hand-in-glove.”
Embattled IMF managing director Christine Lagarde — who faces prosecution in France on accusations of neglecting her duties as a government minister — abruptly cancelled a news conference after the meeting, citing scheduling conflicts.
“Lacklustre growth of the post-crisis era continues,” she said in a statement. “Structural reforms are particularly critical.”
We must not fall prey to the idea that Brexit is the start of an “unravelling” of the EU, write Enrico Letta, Yves Bertoncini and other members of the Jacques Delors Institute.
Concerns about slowing growth in China, the world’s second-largest economy, have receded into the background at the G20 in the face of other threats.
Apart from the British referendum vote the G20 cited several other factors complicating the global economic environment, among them “geopolitical conflicts, terrorism and refugee flows”.
But participants said Brexit was at the forefront of concerns at the meeting in Chengdu, the last before the G20 summit in September.
Philip Hammond, Britain’s finance minister, told reporters the subject had come up “a great deal”.
“The reality is there will be a measure of uncertainty continuing right up to the conclusion of our negotiations with the EU,” he said.
British opposition Labour Party leader Jeremy Corbyn said on Thursday (21 July) that the result of last month’s vote to leave the European Union should be respected, putting him at odds with the lawmaker who is challenging him for his job.
Before the meeting the International Monetary Fund (IMF) downgraded its forecasts for global growth this year and next by 0.1 percentage points, to 3.1 percent and 3.4 percent respectively.
“‘Brexit‘ marks the materialisation of an important downside risk to global growth,” IMF staff said in a report, adding that as it was “still very much unfolding, more negative outcomes are a distinct possibility”.
Officials in Chengdu said protracted or acrimonious talks between the EU and Britain over the departure could heighten the dangers.
‘Solidarity and resolve’
Lew stressed to his European and British counterparts “the need for negotiations to take place in a smooth, pragmatic and transparent manner”.
“A highly integrated relationship between the UK and the EU is in the best interests of Europe, the United States and the global economy,” he told journalists after the meeting.
German Chancellor Angela Merkel gave her opposite number Theresa May breathing space to come up with a Brexit negotiation position on Wednesday (20 July), concurring with the new British PM that London will not trigger Article 50 until the New Year.
Other challenges threaten: a slowdown in the Chinese economy, as well as terrorist attacks and the failed coup in Turkey.
Earlier this month 84 people were killed in the French city of Nice when a Tunisian truck driver — suspected to be inspired by the Islamic State jihadist group — ploughed his vehicle through crowds.
On Friday (22 July), a German-Iranian gunman described as “obsessed” with mass killers shot dead nine people in the German city of Munich before killing himself.
“We condemn, in the strongest possible terms, the recent terrorist attacks,” the communique said. “We reaffirm our solidarity and resolve in the fight against terrorism in all its forms and wherever it occurs.”
French Finance Minister Michel Sapin told AFP that terrorism had become an economic risk: “Today the frequency of attacks creates a new situation of uncertainty, which is at least as damaging as regional destabilisations or a regional conflict.”
But the communique did not mention the failed attempt to depose Turkey’s President Recep Tayyip Erdoğan or his subsequent widespread crackdown on opponents.Officials said the Turkish delegation had demanded an explicit statement of
Officials said the Turkish delegation had demanded an explicit statement of support for Erdogan’s government, but some other representatives had demurred.