G20 overshadowed by gloomy mood as world economy turns to central banks to address red warning signs
- Australia cut interest rates on Tuesday for the first time in three years and India is likely to follow on Thursday
- Finance ministers and central bankers from the G20 industrial and emerging economies gather this week in the Japanese city of Fukuoka
Central banks are resuming their first-responder role as the world economy runs into trouble even if they lack the firepower they once had at their disposal.
US Federal Reserve chairman Jerome Powell signalled an openness to loosening if necessary, and European Central Bank officials are poised on Thursday to at the very least agree on generous terms for new long-term loans for banks.
The upshot is global monetary policy is turning looser just months after the US Federal Reserve and many of its counterparts seemed intent on spending 2019 shifting away from the emergency settings of the past decade. An index by the Council on Foreign Relations shows monetary policy is now at its easiest since 2014, while JPMorgan Chase & Co believes the average benchmark rate of developed nations will end this year looser than now, led by two US Federal Reserve cuts.
The mood regarding global growth is likely to be distinctly gloomier than at the last G20 gathering. This could put pressure on finance ministries and central banks in major economies to inject new stimulus
That is the outlook finance ministers and central bankers from the Group of 20 (G20) industrial and emerging economies face when they gather this week in the Japanese city of Fukuoka.
“The mood regarding global growth is likely to be distinctly gloomier than at the last G20 gathering,” said Matthew Goodman, a former White House official now at the Centre for Strategic and International Studies. “This could put pressure on finance ministries and central banks in major economies to inject new stimulus.”
Worryingly, officials will convene in the knowledge that they have less ammunition and monetary policy is not as potent as it once was. Since the 2008 financial crisis, analysts at the Bank of America calculate central banks cut rates more than 700 times and bought US$12 trillion of financial assets.