The Group of 20 major economies will pledge to accelerate their efforts to more effectively collect taxes from multinational digital companies - Photo: Privacy

JAKARTA (TheInsiderStories) – Finance ministers and central bankers from the Group of 20 (G20) agreed to address global trade and geopolitical tensions, which show no signs of abating, could propel the world economy into a crisis, according to a joint communique released on Sunday (06/09).

The sense of gloom at the gathering of the G20 major economies came amid increasing evidence that global economic growth is slowing amid the United States (US) renewed trade war with China. In a closing communiqué, officials at the G20 warned that trade tensions have “intensified” and agreed to address the risks.

“The [global economic] recovery is supported by the continuation of accommodative financial conditions, stimulus measures taking effect in some countries, and one-off factors dissipating,” said the G20 statement.

Furthermore it said: “However, growth remains low and risks remain tilted to the downside. Most importantly, trade and geopolitical tensions have intensified. We will continue to address these risks, and stand ready to take further action.”

The financial policymakers were meeting in Fukuoka, Japan over the weekend, with the escalating trade war between the US and China dominating discussions. President Donald Trump and Chinese President Xi Jinping are expected to meet at the G20 leaders’ summit in Osaka, Japan on June 28-29, although that meeting is not yet confirmed.

Analysts believe the chances of a breakthrough to reach a trade agreement if that meeting takes place are slim. The US is making preparations to extend punitive tariffs of up to 25 percent on the US$300 billion worth of Chinese goods that have so far escaped such duties and has effectively banned US companies from selling components and software to Chinese telecoms giant Huawei Technologies Inc., sharply escalating the trade war.

China has meanwhile vowed to take “appropriate countermeasures” if the US applies further tariffs and has created its own “unreliable” entities list to punish American companies that take actions that harm Chinese firms.

In a statement posted on the People’s Bank of China, following his meeting with US Treasury Secretary Steven Mnuchin on Sunday, central bank governor Yi Gang stressed that all parties in the G20 should jointly demonstrate their willingness to cooperate in resolving trade frictions and send a positive signal to the international community.

He said China’ economy was growing steadily and reiterated its long-term goal to deepen reforms in its exchange rate and keep the yuan stable at a “reasonable equilibrium level”. Mnuchin had a day earlier accused China of allowing the value of its currency to slide in a bid to offset the impact of Washington’s trade tariffs on the cost of its goods to American consumers.

Many ministers expressed serious concerns about the current tensions surrounding trade, stressing the importance of mitigating risks, and the need to improve collectively the trade and investment environment, G20 chair Taro Aso, finance minister of host country Japan, said in a statement.

Furthermore, Christine Lagarde, Managing Director of the International Monetary Fund (IMF), said the Fukuoka meeting held amid the global economy is showing tentative signs of stabilizing and growth is projected to strengthen. She noted the road ahead remains precarious and subject to several downside risks. The principal threat stems from continuing trade tensions.

IMF estimates that US – China tariffs, including those implemented last year, could reduce the level of global GDP by 0.5 percent in 2020 or about US$455 billion – which could make a significant dent in the projected pick-up in economic activity.

A second risk is that, with interest rates very low, debt levels are rising in many advanced economies, and emerging markets remain vulnerable to a sudden shift in financial conditions. And all this at a moment when monetary and fiscal policy space is more limited than in the past.

“To mitigate these risks, I emphasized that the first priority should be to resolve the current trade tensions—including eliminating existing tariffs and avoiding new ones—while we need to continue to work toward the modernization of the international trade system. This would be the best way for policymakers to give more certainty and confidence to their economies and to help, not hinder global growth,” she said in an official statement.

Lagarde adds, in most countries, monetary policy should continue to be data dependent and accommodative. Fiscal policy should carefully balance growth, debt, and social objectives. And structural reforms—from opening up markets to encouraging greater participation by women in the workforce—should be used to lay the foundation for stronger and more inclusive growth.

If these kinds of measures were jointly implemented, the IMF estimates that they could boost the G20’ GDP level by 4 percent over the long term.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com