ISE-SHIMA (Japan) – Leaders of the Group of Seven (G-7) advanced economies pledged on Friday (May 27) to seek strong sustainable global growth, as they stressed their “special responsibility” in leading global efforts against a myriad of threats to avoid falling into another crisis.
“Global growth remains moderate and below potential, while risks of weak growth persist,” the G-7 leaders said in a communique after a two-day summit in central Japan. “Global growth is our urgent priority,” they added.
The global economy is plagued by weak demand and structural issues, but there are also “potential shocks of a non-economic origin”, the leaders said. These include the possibility of Brexit, or Britain exiting from the 28-member European Union (EU) bloc, which will be decided at a June 23 referendum.
Britain’s pull-out from the EU will “reverse the trend towards greater global trade and investment and the jobs they create, and is a further serious risk to growth”, said the leaders.
They also vowed to bolster the resilience of their respective economies to avoid another crisis.
“We have strengthened the resilience of our economies in order to avoid falling into another crisis and, to this end, commit to reinforce our efforts to address the current economic situation by taking all appropriate policy responses in a timely manner,” they said.
The annual G-7 summit brings together leaders of Britain, Canada, France, Germany, Italy, Japan and the United States. The EU is also represented in the grouping.
The leaders were committed to strengthening economic policy responses in a “cooperative manner and to employ a more forceful and balanced policy mix”, referring to the measures of monetary policy, fiscal stimulus and structural reforms.
They had agreed on Thursday on the need for flexible spending to spark world growth, but had left individual countries to decide on when and how much.
The leaders said they are making tax policy and public spending “as growth-friendly as possible”, including by prioritising expenditure in favour of high-quality investment.
“We will consider the composition of our budget expenditures and revenues to support productivity, employment, inclusiveness and growth,” they said.
Host Japan has stressed the need for flexible fiscal policy to sustain economic recovery. A sales tax hike is slated for April next year in Japan, and local media reported that Prime Minister Shinzo Abe may delay this increase by two years. Doing so would still allow Japan to meet its target of turning the country’s budget deficit into a surplus by fiscal 2020, the daily Yomiuri Shimbun reported.
Mr Abe is expected to make an announcement around the time the current parliamentary session ends next Wednesday (June 1).
The Japanese leader had on Thursday invoked the collapse of US investment bank Lehman Brothers in 2008 to illustrate to his counterparts the dour outlook of the world economy. He had previously said that the unpopular tax hike will only be delayed in the event of a Lehman-scale shock, and a major natural disaster.
In the broad-ranging, 32-page G-7 declaration, the leaders also recognised that global excess capacity in sectors like steel is a “pressing structural challenge with global implications”.
They did not name any country, but Europe and the United States have previously blamed the glut on a surge of cheap exports from China that has impacted jobs and steel makers globally. The EU has launched an anti-subsidy review of Chinese steel, while India has imposed import barriers, Reuters news agency reported.
The G-7 leaders also committed to fight protectionism, and to tap on free trade agreements to create economic opportunities.
The next G-7 summit will be hosted by Italy.