Will G7 Finance and Central Banks Chiefs Rescue the Global Economy?
Finance ministers and central bank chiefs from seven of the biggest economies face a daunting task in the race to avert a potential catastrophe starting the global economy. All eyes are on a three-day meeting in the northern city of Niigata in Japan, where the chiefs are meeting to try and plot the way forward and try to limit the effects of the brewing crisis.
G7 Finance Meeting Agenda
High inflation levels that refuse to fade away even with an aggressive monetary policy tightening would be top on the agenda when the chiefs meet, as it threatens to plunge the economy into recession. While the U.S. Federal Reserve has hinted at the possibility of going slow on interest rate hikes, the European Central Bank has stoked expectations for further interest rate hikes to try to lower interest rates.
The finance chiefs are also poised to discuss the rising costs of living made worse by the energy crisis and labor shortages. The El Nino weather is another major issue posing significant risks in disrupting food and energy output in most economies.
In addition, the chiefs are also being looked upon to try and plot a way to strengthen the global financial system that is facing its biggest test yet. The ongoing banking crisis in the U.S. is already rattling the markets, triggering a mass wave of selloffs in the broader equity market. Poorer nations are also looking to the meeting to see the kind of debt relief that would help caution most economies on the brink of collapse. A push to create resilient supply chains will also be on the agenda.
The G7 finance meeting is also taking place at a time when the U.S., the largest economy in the old, is on the brink of defaulting on its global financial obligation. President Joe Biden and the congressional Republicans have failed to reach an agreement on raising the $31.4 trillion borrowing limit. U.S. Treasury Secretary Janet Yellen has already warned of economic and financial woes should the U.S. fail to raise the debt limit.
Global Recession Threat
Near term, the biggest challenge that the policymakers need to avert is a global recession. The U.S., the biggest economy, is on the brink amid slowing economic growth. If the U.S. plunges, then many economies will be in trouble. If the global central banks succeed in bringing inflation lower despite the high-interest rates, then they should lower the risk of recession.
Investors are already bracing for tougher times as the global economy has been slowing even with the fading of the risks posed by COVID-19, the reopening of the Chinese economy with the end of the stringent lockdown measures, and the easing of the energy crisis triggered by the Russia Ukraine crisis has done little to accelerate economic growth in some of the biggest economies.
Investors are increasingly flocking into defensive plays amid the growing fears about a global recession. As a result, gold and other safe havens have been attracting billions of dollars in investments in recent months as investors remain on the defensive.