OECD calls for G20 structural reforms as global growth prospects dim

Bank of England Governor Mark Carney attends a conference during the 2016 IIF G20 Conference at the financial district of Pudong in Shanghai, China, February 26, 2016. REUTERS

Reuters: The Organisation for Economic Cooperation and Development (OECD) called on Friday on the world’s 20 biggest economies to step up the slowing pace of reforms to boost economic growth amid sluggish trade and weak investment.

Finance ministers and central bank governors of the 20 biggest economies, the G20, are meeting in Shanghai over the weekend to address the weaker global growth outlook.

“Global growth prospects remain clouded in the near term, with emerging-market economies losing steam, world trade slowing down and the recovery in advanced economies being dragged down by persistently weak investment,” the OECD said.

“The case for structural reforms, combined with supporting demand policies, remains strong to sustainably lift productivity and the job creation,” said the OECD report, prepared for the G20 meeting.

The organisation has a task of monitoring reforms in the G20 to help the group deliver on its pledge from 2014 that they will increase global economic growth by two percentage points by 2018 through a series of coordinated structural adjustments to their economies.

At the time, all G20 countries together pledged to deliver some 800 reforms in total, but their implementation is lacking, the head of the OECD Angel Gurria told a news conference on the sidelines of the G20 meeting.

“Just at the time when we need it more, when we need to accelerate reform, there is a deceleration of reform,” Gurria said. “The question is how do we get the appetite, the conviction for the reform process going.”

“The problem is it is not happening, even that 2% we agreed on is not happening,” Gurria said. “That is something we are very worried about.”

The OECD said that the pace of reform was generally higher in Southern European countries like Italy and Spain, than among Northern European countries. Outside Europe, the reform leaders were Japan, China, India and Mexico.

The slower-than-expected growth, especially in the world’s second-biggest economy China, has added to uncertainty and volatility on financial markets, as ultra low or even negative interest rates have not provided the expected growth stimulus yet, but have already reduced returns on investment.

“Financial markets are increasingly volatile as capital searches for both yield and safety,” the OECD said.

“Getting back to healthy and inclusive growth calls for urgent policy response, drawing on monetary, fiscal, and structural policies working together,” the report said.

G20 financial leaders will discuss on Friday and Saturday how to better coordinate their policy response by trying to identify which policy areas and which countries still had room for manoeuvre to do more.

“This 2016 Going for Growth report underscores the importance of synergies among policies in designing policy packages,” the OECD said.

Germany, with a fiscal surplus, a huge current account surplus of more than 8% of GDP and relatively low investment, is likely to be asked to step up spending, G20 officials said.

World shares rally as G20 chiefs thrash out growth remedies

AFP: Global stock markets rallied Friday helped by firmer oil prices and brighter-than-expected US growth data, as finance and banking chiefs from the world’s leading economies began talks.

European bourses followed a strong showing by Asia’s main indices as G20 finance ministers and central bankers gathered in Shanghai to thrash out remedies to kickstart growth.

In mid afternoon trading Frankfurt’s DAX led the way, at nearly two-percent higher, followed closely by shares in Paris and London. US stocks also edged higher after opening, cheered by an upgrade to the US economic growth estimate for the fourth quarter of last year.

“Investors are cautiously optimistic as we see out the week, but there will no doubt be many more twists and turns on the road ahead,” said Mike McCudden, head of derivatives at stockbroker Interactive Investor.  “With the G20 summit... and high expectations of bullish comments from the forum, investors are taking their cue to move with the hot air and push stocks higher. 

“The oil price is the major motivator for movement,” he added. Benchmark oil contract Brent North Sea crude rose back above $36 a barrel on Friday, boosting shares in energy companies. 

Market-wide rallies came as officials from the Group of 20 industrialised nations gathered for a two-day meeting, with China’s sagging growth expected to loom over the discussions.

Shanghai’s main stocks index rose almost one% Friday after the head of the People’s Bank of China said the economy was strong and signalled authorities could do more to help stimulate growth.

Shanghai had plunged more than six% on Thursday, hit by tightening liquidity and concerns a rally that has added 10% since mid-January was overdone.

Chinese shares have been on a rollercoaster ride since a debt-fuelled bubble burst last year, while cooling growth in the key importer of raw materials has sent commodity and energy prices spinning.

Pressure has meanwhile been mounting for central banks to let loose their monetary firepower to stimulate growth and reassure investors, after financial markets posted one of the worst starts to the year in living memory.

Japan has already adopted negative interest rates, the European Central Bank has embarked on its own huge stimulus program, and the US Federal Reserve has signalled possible delays to interest rate rises.

But German Finance Minister Wolfgang Schaeuble set the stage for disputes at the Shanghai meeting when he said Europe’s largest economy opposes any G20 fiscal stimulus package.