World’s top: G20 seeks to lift market mood, douse China fears

Concerns raised over economic slowdown, US monetary policy also on agenda

ANKARA: Ministers and central bank chiefs from the world’s top 20 economies sought on Saturday, to bolster market confidence in the global economy and calm mounting jitters over the fallout from China’s slowdown.

Also preoccupying the economic supremos from the G20 is the monetary policy of the US Federal Reserve, with economists warning a rate rise at its next meeting later this month, could deal a heavy blow to emerging markets already mired in trouble and, in some cases, recession.

China rattled markets in mid-August with a sudden devaluation of its currency, amplifying concerns about its slowing growth and leading to panic selling on markets.

“It is highly improbable that China will be specifically mentioned in the final communiqué to be published later on Saturday, after two days of talks in Ankara,” said sources.

But US Treasury Secretary Jacob Lew pressed his Chinese counterpart on the side-lines of the meeting to improve communication of economic policy and refrain from ‘competitive devaluation’ of its currency to gain advantages for Chinese exporters.

The Chinese central bank on August 11 devalued the Yuan by nearly 2%, surprising markets and raising concerns about the effects of China’s economic slowdown and bitter criticism of its opaque communications.

“It would be a very bad thing for the global economy if we get into a pattern of competitive devaluation,” said a senior US treasury official, adding the issue would be addressed in the final communiqué.

Meanwhile, a long shadow has been cast by uncertainty over the monetary policy of the Fed, which has held its benchmark federal funds rate at the zero level since 2008 to support the economy’s recovery from a recession.

While economists say the current robustness of the US economy could justify a rate hike, the so-called lift-off from zero would suck up liquidity badly needed by troubled emerging markets.

Key emerging markets are already in severe trouble, in particular Brazil and Russia.

The Institute of International Finance, a global association of financial institutions, said the recent decline in equity and currency values in several emerging markets had reached crisis proportions.

Even if the Fed were to postpone the mooted rate hike until later this year, it would provide only short-term relief, it added.

“On some measures, the slowdown in emerging markets in the second quarter of this year means their growth is now not much faster than developed markets, noted a London-based consultancy called ‘Capital Economics’.

Host Turkey, whose ambitious President Recep Tayyip Erdogan wants to make his country a top 10 global economy by 2023, is another key emerging market hitting choppy waters as the impressive growth figures of past years slip away.

The Turkish lira on Friday hit a new historic low against the dollar, smashing through the 3.0 to the dollar ceiling, amid continued political uncertainty after inconclusive June 7 elections.

But the Financial Times reported Saturday that the final G20 communiqué would strike a reassuring note and even forecast an increase in global growth. The G20 has also taken up the issue of migration amid the alarm in Europe triggered by the horrifying image of a three-year-old Syrian refugee who drowned off Turkey.

“Well managed migrations can bring benefits to developed economies,” emphasised Organisation for Economic Co-operation and Development (OECD) Head Angel Gurria.

Published in The Express Tribune, September 6^th, 2015.

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