Pace of global recovery has weakened

WASHINGTON: Noting that the pace of global recovery has weakened and become more uncertain, a G-24 ministerial meeting today said that the downside risks facing the global economy have increased.

The meeting of Ministers of the Intergovernmental Group of 24 on International Monetary Affairs and Development was chaired by South African Finance Minister Pravin Gordhan and vice-chaired by Union Finance Minister Pranab Mukherjee.

Observing that in the multi-speed recovery that is underway, most developing regions have continued to maintain their growth momentum reflecting strong fundamentals and robust macroeconomic frameworks, the G-24 noted the recovery has, however, become more sluggish in advanced economies, with many facing a vicious cycle of weak sovereign balance sheets, high unemployment and lack of consumer confidence and continued fragility in the financial sector.

Ministers noted that the simultaneous and broad-based fiscal consolidation that is presently underway in many advanced economies poses considerable risks of a downward spiral in global demand.

In a communique, the G-24 said while emerging markets and developing countries (EMDCs) will continue to provide a major impetus to the global economy, they cannot be the sole engines for the global recovery.

The ministers expressed concern about the impact of the growing divergence in monetary policy between advanced and developing countries.

In particular, the prospects of sustained low interest rates in the advanced countries have contributed to a surge in capital flows to some emerging markets, putting upward pressures on exchange rates, creating overheating pressures, and carrying risks of increased vulnerabilities and reversals, the communique said.

"In view of the risks posed by surges in capital flows, Ministers called on the IMF to strengthen the monitoring of such flows and to consider options for mitigating risks," they said.

Ministers welcomed the efforts underway to strengthen financial regulation, in particular through the work of the Financial Stability Board and the Basel Committee and viewed the new capital and liquidity frameworks as an important step, but noted that much more needs to be done.

The communique called for appropriate calibration and adaptation of the new rules to the circumstances and needs of developing countries including the smooth functioning and deepening of credit markets and the cost of credit.