You are here

G20 more upbeat on growth, but officials fret over Greece

G2002180415.jpg
The Group of 20 leading economies struck a hopeful tone on the outlook for global growth on Friday, even as officials fretted that Athens' inability to strike a deal with its lenders could upset Europe's tentative recovery.

[WASHINGTON] The Group of 20 leading economies struck a hopeful tone on the outlook for global growth on Friday, even as officials fretted that Athens' inability to strike a deal with its lenders could upset Europe's tentative recovery.

In a communique after a two-day meeting, G20 finance ministers and central bankers welcomed brighter economic signs in rich nations, but lamented weakness in emerging markets. "Risks to the global economy are more balanced since we last met," the finance officials said. "Near-term prospects in advanced economies, notably the euro area and Japan, have improved recently, while the US and UK continue to record solid growth, which could support a stronger global recovery." Still, the group of developed and emerging market nations, which represent around 80 per cent of global economic output, cited challenges from an array of sources, including exchange rate volatility and geopolitical tensions.

Greece was not mentioned by name in the communique and Turkish Deputy Prime Minister Ali Babacan, speaking on behalf of the G20, said the issue of Greece did not feature in the formal discussions.

But uncertainty over whether Athens could reach agreement with its European Union and International Monetary Fund lenders over new bailout terms in time to meet big upcoming debt payments cast a cloud over the gathering and other talks on the sidelines of the IMF and World Bank spring meetings. "The mood is notably more gloomy than at the last international gathering," British finance minister George Osborne told reporters. "It's clear now to me that a misstep or a miscalculation on either side could easily return European economies to the kind of perilous situation we saw three to four years ago."

The new leftist government in Athens must come forward with economic reforms acceptable to the IMF and EU before bailout funds are unlocked, but the negotiations have been moving at a crawl. "It's important that we in the coming days make significant progress, that the process gains momentum," IMF European Department Director Poul Thomsen told reporters. "There needs to be a comprehensive package, and that will clearly take several weeks or more of discussions." The United States pressed Athens to commit more fully to discussions over the nuts-and-bolts of proposed reforms. "Not reaching agreement would create immediate hardship for Greece, and uncertainties for Europe and the global economy more broadly," US Treasury Secretary Jack Lew said in a statement.

In a sign of the seriousness with which officials are taking the risk that negotiations founder, the European Central Bank has analysed a scenario in which Greece runs out of money and starts paying civil servants with IOUs, people with knowledge of the exercise told Reuters.

Concerns about Greece contributed to big stock price declines in Europe and on Wall Street, with the Dow Jones industrial average closing down about 279 points, or 1.5 per cent.

While the G20 sounded guardedly optimistic on the global economy, it pointed to a risk of financial volatility as the US Federal Reserve prepares to raise interest rates. "In an environment of diverging monetary policy settings and rising financial market volatility, policy settings should be carefully calibrated and clearly communicated to minimize negative spillovers," the communique said.

The main worry centers on emerging markets, which have been beset by capital outflows as investors placed bets on higher interest rates in the United States. The G20 said nations could protect themselves if needed by taking steps to curb sharp capital movements.

REUTERS