Biggest economies seek agreement on growth as outlook dims

Global finance chiefs gathering in Cairns, Australia, face growing pressure to take steps to bolster growth as the global economic outlook dims.

Group of 20 economies will share plans at this weekend's meeting of finance ministers and central bankers on ways to boost gross domestic product by 2 percent over five years, a commitment that the group will reiterate in Cairns, an official said, citing the draft communique. G-20 delegates see the global growth outlook as less positive than early this year, he said.

The global economic recovery has faltered since a February G-20 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. Some officials at the meeting, like U.S. Treasury Secretary Jacob J. Lew, are pressing members to consider more immediate measures to boost demand.

“Overall, the global economy continues to underperform. This is particularly true in the Euro area and Japan,” Lew said in prepared remarks in Cairns today. “More work is needed to achieve faster and more balanced growth, to boost demand especially in surplus countries, and to promote employment.”

The Organization for Economic Cooperation and Development this week trimmed its growth forecasts for the biggest developed economies. Euro-area GDP is expected to expand 0.8 percent this year, down from 1.2 percent forecast in May, while the U.S. will expand 2.1 percent instead of 2.6 percent, the Paris-based organization said. 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.

G-20 members have come up with measures that bring the world's largest economies close to the GDP goal set in February, while not meeting the target yet, said the official representing one of the nations at the meetings. He spoke on condition that he not be identified because the information and talks aren't public.

There is “more work to do” to meet the target, World Bank President Jim Yong Kim said in Sydney today.

“If you put all the efforts on the table, the IMF and OECD have suggested that we're at about 1.6 percent growth,” he said.

Australian Treasurer Joe Hockey, the meeting's host, said Sept. 16 there was “no way” the group would soften its commitment to the growth target. Policy makers gathering in Cairns will consider members' economic strategies and reveal the plans to increase GDP at a G-20 leaders' meeting in Brisbane in November, he said.

A division may be emerging over how quickly measures need to be taken, and how much focus should be placed on growing demand through fiscal stimulus. Hockey has emphasized larger structural measures 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.”

Lew has been making the case for more urgent steps to lift domestic demand so the world has multiple engines of growth.

“Stimulating demand in the short term is part of the solution,” Lew said before departing the U.S. for Cairns earlier this week. “It's quite obvious that some of these issues really do require more attention and more discussion.”

The U.S. Treasury Secretary told Japan's Finance Minister Taro Aso it was important for the nation to remain committed to its so-called three arrows of economic policy to sustain demand, according to a Treasury Department statement.

Several G-20 members support fiscal and monetary growth stimulus, the official from the G-20 nation said late yesterday.

Even some of the strongest proponents of fiscal consolidation in the G-20, such as Germany and Canada, are suggesting government budgets could play a larger role.

“I don't think this is the time to abandon prudence, but there has to be some flexibility over the shorter term because we really don't want the world's largest economy to start going into a deflationary spiral,” Canadian Finance Minister Joe Oliver said in an interview with Bloomberg News ahead of the Cairns meeting, referring to Europe.

The development of the world economy is a matter of urgency, German Finance Minister Wolfgang Schaeuble said in Hong Kong today on the way to Cairns, warning of “downside risk” for Europe and the world economy. Even so, there is “rather too much liquidity” in the market and Europe has limited leeway to support growth while it needs to continue structural reforms, he said.

The debate could reflect 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 over reliance on loose monetary policy.

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.

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 the European 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.

Infrastructure is one avenue Group of 20 countries are focusing on, said Richard Goyder, chief executive of Wesfarmers Ltd., who is also chairman of the B-20 group of executives advising the Australian government on its G-20 presidency.

“What we know is that there's no shortage of money,” Goyder said in an interview in Cairns today.