IMF stimulus call

G20 finance ministers and central bank governors meet in Shanghai on Friday and Saturday with the global economy under pressure on multiple fronts.

Low prices for fossil fuels and other commodities have triggered global equity market declines, since many stock markets are heavily composed of companies closely linked to the production of energy and raw materials.

Other financial numbers are also giving cause for concern. There are worries about excessive accumulated debt and non-performing loans weakening bank balance-sheets in multiple countries, not least in China. This could result in banks taking a more cautious approach to lending, further reinforcing a downward trend.

Against this background, the International Monetary Fund (IMF) called for "strong policy responses" which were needed to "contain risks and propel the global economy to a more prosperous path." In a staff note prepared for the G20 meeting, the global emergency lender urged "action on multiple fronts.

IMF calls for coordinated global stimulus spending and structural reforms

In advanced economies, strengthening economic growth "requires a mix of mutually-reinforcing demand and supply policies," the note said, including a continuation of "accommodative monetary policy" - i.e. near-zero interest rates.

However, the IMF warned against over-reliance on monetary policy, saying countries like Germany which have "fiscal space" to borrow and spend more should do so, "especially through investment that boosts both the demand and the supply potential of the economy."

On the supply side, in both advanced and emerging economies, well-designed structure reforms remained necessary to lift potential output, the IMF note said. Greater efforts should also be made to repair private sector balance sheets by writing down bad debts.

The IMF also urged exchange rate flexibility to help economies adjust to external shocks, as well as improved macroprudential regulatory oversight. Moreover, the resilience of emerging countries should be enhanced by making efforts to diversify their economies.

Multilateral approach urged

The G20 "must act now" to implement forcefully existing G20 growth strategies and "plan for coordinated demand support" by boosting public investment. It called for reforms aimed at creating more dynamic, innovation-friendly business environments and "bolstering human capital" as well as alleviating infrastructure bottlenecks.

Reforms to the global financial safety net may be necessary, including new international financing mechanisms, the IMF said, "to address the potentially protracted risks faced by commodity exporters and emerging markets with strong fundamentals but high vulnerability."

The IMF also proposed a coordinated global initiative to help countries at the center of the current refugee crises and public health epidemics shoulder their burdens. Wealthier countries at risk from spillover effects, in particular, should contribute financial support and channel it to areas most in need.

China announces job-adjustments program

With China attempting to shift the balance of its economy from an overwhelming focus on infrastructure construction and exports to a greater emphasis on consumer demand, the country is confronted with overcapacity in a number of sectors, such as steel and coal production. On Thursday, vice-minister of industry Feng Fei announced a program funded at the equivalent of 14 billion euros ($15.4 billion) for a job-creation program to help workers facing losing their jobs in those industries.

Fei said that fundamentally, private job markets should deal with the problem of re-allocating labor, but the government in Beijing must help the provinces create new jobs for displaced workers.

Schäuble calls migration a big challenge for Germany

German finance minister Wolfgang Schäuble, speaking at a trade conference in Shanghai ahead of the opening of the G20 finance ministers' summit, said that "the big challenge is migration" for Germany's budget in coming years.

An internal technical projection of the German government used to calculate future costs of the migrant influx used a baseline scenario of 3.6 million migrants coming to Germany in total in the period 2015 to 2020, though it emphasized the number could end up being higher or lower depending on political developments.

Schäuble indicated the finance ministry had projected that it would be able to maintain balanced budgets during the coming five years under the 3.6 million migrants scenario, provided the government didn't expand spending significantly in other areas.

Large-scale immigration into Germany from troubled countries like Syria, Eritrea, Iraq, Afghanistan and elsewhere in the wider Middle East or Africa mean higher government expenditures in a number of areas, including defense, internal security and international development cooperation, Schäuble said.

Neverthless, he would continue to press for maintaining a balanced budget or a budget surplus in 2017.

The German government has run balanced budgets - specifically: tiny deficits of only 0.1 percent or less, or surpluses - each year since 2012, including a record surplus in 2015.

The minister's commitment to running surpluses remains a politically powerful and popular policy in a country with a high private savings rate, cultural suspicion of debt, and a traditional emphasis on financial prudence. Some economists, however, oppose the policy, saying that the country has been underinvesting in infrastructure renewal and should take advantage of its current ability to issue sovereign debt at negative interest rates to prepare for the future by investing massively in infrastructure upgrades and skills training.

nz/uhe (Reuters, AP, IMF website)