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World economy still faces threats

Via Deseret News : The global recovery has regained most of the ground lost from the market turbulence at the beginning of the year, finance officials of the world’s largest economies said Friday. But they worry that growth remains uneven in the face of a variety of threats ranging from terrorist bombings to Britain’s upcoming vote on whether to leave the European Union.

The finance ministers from the Group of 20 major economies pledged to pursue policies that will bolster growth and further stabilize financial markets, but they offered no new measures to accomplish these goals.

Reflecting some of the challenges the countries face, Lou Jiwei, China’s finance minister, defended his country’s handling of its economy against criticism that has seen two major credit rating agencies recently downgrade the outlook for Chinese bonds.

The joint statement from the G-20 finance ministers and central bank governors repeated many of the promises the group had made at their last meeting in Shanghai in late February. However, at that time global financial markets had just gone through a significant bout of turbulence over concerns about a worse-than-expected slowdown in China, falling oil prices and the threat they posed to the global economy.

U.S. Treasury Secretary Jacob Lew said the resolve demonstrated by the finance officials to bolster global growth represented a strong statement rebutting the voices of anti-globalization. He said cooperation was needed because “the United States cannot and must not be the only engine of growth. … All major economies need to deploy a full tool kit of economic policy measures.”

While there are still many challenges, finance officials said they were encouraged that markets had stabilized.

Stephen Poloz, head of the Bank of Canada, said the mood this week was much better than at the February meeting in China: “I came away feeling a little more encouraged than when I arrived.”

Japanese Finance Minister Taro Aso said the world’s financial markets are starting to regain “composure,” although he said “downside risk” persists. Aso expressed particular concern about risks from volatility in capital flows and foreign exchange rates.

Japanese officials are concerned about the value of the yen, which has risen rapidly this year against the dollar despite an unusual move by the Bank of Japan in February to introduce negative interest rates in a so-far unsuccessful effort to spur Japan’s flagging economy.

The G-20 discussions were occurring as part of the spring meetings of the 189-nation International Monetary Fund and the World Bank. Lew and Federal Reserve Chair Janet Yellen were representing the United States at the meetings.

In its statement Friday, the group acknowledged the volatility at the beginning of the year but stated that markets had “recovered most of the ground lost” although “growth remains modest and uneven.”

Much of the market nervousness has focused on China, the world’s second largest economy. Investors have grown concerned that China’s slowdown is even worse than the government’s numbers show and that Chinese authorities have mishandled policies meant to restore confidence.

On Friday, the Chinese reported that economic growth fell to 6.7 percent in the first three months of 2016, the slowest since the financial crisis but strong by global standards.

Moody’s Investors Service and Standard & Poor’s last month downgraded the outlook for Chinese government bonds, citing slowing economic growth and rising government debts. China is attempting a transition from rapid growth based on often-wasteful investments in factories and real estate to slower but more sustainable growth built on consumer spending.

Moody’s warned Friday that China is straying from that strategy, propping up growth by funneling loans to inefficient government-owned companies and putting longer-term growth at risk.

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