G-20 finance ministers set to revise rosy outlook

Tokyo (Reuters): Raging global trade tensions are likely to force some finance leaders from Group of 20 nations meeting in Japan this weekend to issue stark warnings about risks to the world economy, challenging the forum’s more upbeat outlook on global growth.

In a communique set for release after the meeting, the G20 finance ministers and central bank heads are expected to maintain a view that global economy will pick up through next year. However, some policymakers may be less optimistic about the outlook and flag growing risks when they speak on the sidelines of the meeting, as US President Donald Trump’s bitter trade war with China and Mexico jolt markets and stoke fears of a global recession.

In the previous communique issued in July last year, the G20 finance leaders said global economic growth “remains robust” but downside risks over the short and medium term have increased.

“A few months earlier, there was a broad consensus that global growth will rebound in the latter half of this year, as the effect of China’s stimulus measures kick in,” said an official who is among a delegation attending the G20. “In hindsight, that view may have been too optimistic.”

Factory activity slowed in the US, Europe and Asia last month as the escalating trade war raised fears of a global economic downturn. Such global recession fears have prompted Australia and New Zealand to cut interest rates, while several US Federal Reserve officials have also hinted at the chance of rate cuts.

“A global recession is not our main scenario, but the risks are on the rise,” said Hiroshi Shiraishi, senior economist at BNP Paribas Securities. “The G20 will talk about the ongoing uncertainty and state that they are ready to act if needed. But realistically, what can they do?”

The two-day G20 meeting kicking off on Saturday in Fukuoka, southern Japan, will lay the groundwork for a leaders’ summit in Osaka on June 28-29.

US Treasury Secretary Steven Mnuchin will meet People’s Bank of China Governor Yi Gang in Fukuoka, which will be the first face-to-face discussion between key members of the two countries’ trade negotiation teams since talks broke down a month ago.

As this year’s G20 chair, Japan will host discussions on ways to address imbalances through a multilateral approach, in hope of rallying support to push back against Trump’s demand to fix US trade deficits through bilateral deals and tariffs.

But policymakers in Tokyo say they have no intention to mediate current trade disputes, suggesting the G20 finance leaders will keep a low profile on issues regarding tariffs. The communique will maintain language that warns against excessive and disorderly currency moves, the officials said.