World leaders and their finance ministers and central bank representatives gathered in the southwestern city of Chengdu, China this Saturday to discuss the challenges created and exacerbated by the United Kingdom’s decision to leave the European Union. The nation’s leaders had many questions for the UK’s new finance minister, Phillip Hammond, regarding how quickly the UK planned to move ahead with their formal negotiations to leave the EU. Many people are worried that a long delay, or a potential second referendum, will lead to further uncertainty facing today’s economy.
World leaders are also discussing the Republican nominee Donald Trump and his seemingly ethnocentric “America first” ideology. If elected, Trump’s ideology goes directly against G20 discussions and agreements since January of this year. Top policymakers said on Saturday they sought to deal with fallout from Britain’s Brexit vote and counter dissatisfaction with globalization. G20 nations want to increase cooperation between the countries in order to ameliorate the dragging world economy. U.S. Treasury Secretary Jack Lew said it was important for G20 countries to boost shared growth using all policy tools, including monetary and fiscal policies as well as structural reforms, to boost efficiency. Chinese Finance Minister Lou Jiwei called for more coordination to promote sustainable growth, as fiscal and monetary tools were becoming less effective (CBC, 23/07/16).
The International Monetary Fund (IMF) cut its global growth forecast because of the Brexit vote and the negative repercussions that will ensue from the unprecedented results. The Italian Economy Minister Pier Carlo Padoan said that; “I hope that there is going to be clarification about the timing and process of the divorce. The sooner the better so this generates a new equilibrium (CBC, 23/07/16).” Wolfgang Schaeuble from Germany said that it should not fall on other countries to pick up the bill that the Brexit inevitably causes, he believes it is a matter that Briton’s should have to deal with themselves. This is reasonable being that only a small majority of Briton’s voted for the European union exit, many if not all other European leaders would have preferred the UK stay within the European Union. Distributed data released on Friday seemed to reveal the fears most were worried about, with a British business activity index posting its biggest drop in its 20 year history.
As agreed upon in the G20 meeting in January, G20 members need to refrain from competitive devaluations. Japan’s economy is thriving in these uncertain economic times. The yen strengthened to almost 100 to the American Dollar after the Brexit vote in June, although as of mid-July it has eased back to 106 per American dollar. Japan’s strengths this year have been exports and undermining efforts to escape deflation.
The recovery from the Brexit continues but at a slower pace than originally hoped for by the G20 leaders. Those countries that are prospering in these difficult economic and politic times should be sharing their benefits of growth to promote inclusiveness according to a draft written by the G20 leaders and disseminated by Reuters on Saturday. The draft, which could be changed before it is expected to be released at the end of the meeting on Sunday afternoon, said that the Brexit results added to uncertainty in the global economy but G20 members were “well positioned to proactively address the potential economic and financial consequences (CBC, 23/07/16).”