Thursday, February 12, 2015

Oil price fall 'will boost global growth'

It should also allow some states to reassess fiscal policies, says G-20

FEB 11, 2015

ISTANBUL - The recent sharp decline in oil prices will provide "some boost" to global growth and should allow states to "reassess" fiscal policies to sustain economic activity, the Group of 20 (G-20) leading economies said in a draft communique obtained by the media.

"The fall in oil prices will provide countries with an opportunity to reassess their fiscal policies," finance ministers and central bank chiefs from the group said in the statement.

It said that fiscal policy "has an essential role" in building confidence and sustaining domestic demand.

At their two-day meeting in Istanbul this week, the G-20 have sought ways to boost faltering global growth against the background of the debt crisis in euro zone member Greece.

The statement did not specifically mention Greece, which is not a member of the G-20.

While the oil price fall will cause some boost in global growth, the implications will be different for oil exporting and oil importing countries, it said.

The decline will increase the purchasing power of oil importing economies and "could exert downward pressure on inflation, though temporarily".

However, it said the outlook for oil prices remains "uncertain".

"We will continue to closely monitor developments in commodity markets and their impact on the global economy."

"In some countries, potential growth has declined, demand continues to be weak, the outlook for jobs is still bleak, and income inequality is rising," the communique said.

It said that growth in the global economy remains "uneven" and the recovery "slow", especially in the euro zone and Japan, as well as some emerging market economies.

"To this end, we will continue to assess major risks in the global economy and remain vigilant," the finance chiefs said.

They also warned of the risk of stagnation in some leading economies.

"Prolonged low inflation alongside sluggish growth and protracted demand weaknesses in some advanced economies may increase the risk of persistent stagnation."

It also said that global trade growth "continues to be low" compared to its pre-crisis averages.

The leading economies pledged to review and act decisively on monetary and fiscal policy, if needed, to combat the risk of persistent stagnation.

The communique welcomed the European Central Bank's quantitative easing - despite German concern about the policy - and said the move would further support recovery in the euro area.

In a nod to expectations that the United States Federal Reserve will raise interest rates, it said some advanced economies with stronger growth prospects were moving closer to "policy normalisation".

But it cautioned: "In an environment of divergent monetary policy settings and rising financial market volatility, policy settings should be carefully calibrated and clearly communicated to minimise negative spillovers."

G-20 members will keep fiscal policy flexible to reflect near-term economic realities, a nod to fiscal doves, while also pledging to put debt as a share of output on a sustainable path, a nod to hawks, it said.

It made passing reference to the need for flexible exchange rates, pledging to "stick to our previous exchange rate commitments".

The economies also committed to "deepen our cooperation" in the fight against terrorism financing by exchanging information and "freezing terrorist assets".

The G-20 asked for a report by October on "proposals to strengthen all counter-terrorism financing tools."

The communique was intended for adoption yesterday.


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