G20 finance heads see modest global growth amid epidemic

February 24, 2020 08:36
Saudi Minister of Finance Mohammed al-Jadaan speaks at a media conference in Riyadh, Saudi Arabia on Sunday. Photo: Reuters

Finance chiefs of the world’s top 20 economies vowed to monitor the impact of the coronavirus outbreak on global growth and act if needed, as they said loose monetary policy and easing trade tensions would prompt a pick-up in 2020 and 2021, Reuters reports.

The outbreak will likely lower China’s economic growth this year to 5.6 percent, down 0.4 percentage points from its January outlook, and shave 0.1 percentage points from global growth, the IMF said.

International Monetary Fund Managing Director Kristalina Georgieva presented the outlook to central bankers and finance ministers from the world’s 20 largest economies at a meeting in Riyadh, but said the IMF was also looking at more dire scenarios if the outbreak lasts longer and spreads more globally.

“We will enhance global risk monitoring, including of the recent outbreak of Covid-19. We stand ready to take further action to address these risks,” according to a from the G20 finance leaders on Sunday.

“Global growth is expected to pick up modestly in 2020 and 2021,” they predicted. “The recovery is supported by the continuation of accommodative financial conditions and some signs of easing trade tensions.”

US Treasury Secretary Steven Mnuchin said central bankers would look at options to respond to the epidemic if needed, while Bank of Japan governor Haruhiko Kuroda said he was ready to ease policy if necessary.

China was represented at the G20 meeting by its ambassador to Saudi Arabia, as senior officials stayed away due to the growing crisis over the virus.

Saudi Finance Minister Mohammed al-Jadaan told a news conference at the meeting: “We have discussed the outbreak of coronavirus in China and other countries and all the G20 countries agreed collectively on being ready to intervene with necessary policies.”

The epidemic, which was first reported in China, has since spread to nearly 30 countries and territories.

South Korea raised its infectious disease alert to its highest level on Sunday but the European Union saw “no need to panic” over an outbreak in Italy.

“In our current baseline scenario, announced policies are implemented and China’s economy would return to normal in the second quarter,” Georgieva said.

“As a result, the impact on the world economy would be relatively minor and short-lived.”

“But we are also looking at more dire scenarios where the spread of the virus continues for longer and more globally, and the growth consequences are more protracted,” she added.

The ministers and central bankers also encouraged further work by the Organization for Economic Cooperation and Development (OECD) on global rules to tax digital giants like Google, Amazon and Facebook.

The OECD is to prepare technical assumptions by July that would allow governments to tax digital companies where they do business, rather than where they are registered for tax purposes.

The group’s efforts were stalled late last year by last-minute changes demanded by Washington, including a proposed “safe harbor” regime which critics say would let multinationals choose whether to abide by the new set of rules or stick to existing regulations.

“I told my counterparts that Japan is very concerned about the ‘safe harbor’ proposal,” Japan’s Finance Minister Taro Aso told reporters, joining a chorus of criticism by France and other nations over the US proposal.

“It would extremely diminish the regulatory effect of what we’re trying to do. That is a view expressed by various countries,” he said.

Mnuchin warned, however, that he opposed discriminatory taxes on digital services, the providers of which are mostly from the United States.

He said Washington would respond with investigations and potential retaliatory tariffs if countries decided to go it alone, outside the OECD deal.

A final agreement on the global rules is to be ready by the end of this year to avoid a proliferation of different digital tax regimes all over the world.

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