ISTANBUL, Feb 10 (Reuters) - The Group of 20 (G20) leading economies will pledge to act decisively on monetary and fiscal policy if needed to combat the risk of persistent stagnation, according to a draft communique obtained by Reuters on Tuesday.
The communique, intended for adoption by G20 ministers later on Tuesday at a meeting in Istanbul, pointed to the risk of prolonged low inflation, sluggish growth and demand weakness in some advanced economies.
“Accordingly, we will continuously review our monetary and fiscal policy settings and act decisively, if needed,” the draft document said.
The draft welcomed the favourable outlook in some key economies but gave a gloomy assessment of the global economy as a whole, saying growth was uneven and trade growth slow.
“In some countries, potential growth has declined, demand continues to be weak, the outlook for jobs is still bleak, and income inequality is rising,” it said.
It noted slow growth in the euro area and Japan and said some emerging market economies were slowing down, while some low-income developing countries were seeing continued strong growth but with some recent moderation.
The draft communique welcomed the European Central Bank’s (ECB) quantitative easing - despite German concern about the policy - and said the move would further support recovery in the euro area.
In a nod to expectations that the U.S. Federal Reserve will raise interest rates, the draft said some advanced economies with stronger growth prospects were moving closer to “policy normalisation”.
But it cautioned: “In an environment of divergent monetary policy settings and rising financial market volatility, policy settings should be carefully calibrated and clearly communicated to minimize negative spillovers.”
It said the sharp decline in oil prices would provide some boost to global growth but noted that the outlook for prices remained uncertain and said the G20 would monitor commodity markets closely.
G20 members will keep fiscal policy flexible to reflect near-term economic realities, a nod to fiscal doves, while also pledging to put debt as a share of output on a sustainable path, a nod to hawks, the draft said.
It made passing reference to the need for flexible exchange rates, pledging to “stick to our previous exchange rate commitments”. The draft also said G20 members were disappointed with the continued delay in IMF quota reform and urged U.S. action to enable it to move ahead.