Fragile global rebound confuses CFOs as variants lurk

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Global finance chiefs have expressed concern over threats that could derail a fragile recovery as they conclude a meeting to start reshaping the post-crisis economic order.

New variants of the coronavirus and an uneven pace of vaccination could undermine prospects for improving the global economy, a statement approved by Group of 20 finance ministers on Saturday at a rally hosted by Italy in Venice . They have decided to maintain growth support to ensure that recoveries can continue to set in.

Officials also approved a global deal to force multinationals to pay more taxes in the places where they operate and set a minimum tax rate for companies, though their talks revealed lingering tensions. They first recognized the role of carbon pricing in tackling climate change, but without consensus on when to achieve net zero emissions.

The difficult outlook for the G-20 underscores how its immediate challenge remains to pull the world out of the world’s worst crisis in living memory, even if longer-term issues such as rewriting a century-old tax system or concerns environmental issues fill its agenda.

“The biggest risk remains Covid,” Philip Hildebrand, vice chairman of BlackRock and former chairman of the Swiss National Bank, told Bloomberg Television on Friday. “We need to speed up vaccines, deliver them, and I think very important, think about developing countries as well.”

The delta variant, first spotted in India and now spreading across the world, is emerging as a new threat after more than a year of crippling lockdowns. While the United States and Europe are enjoying a strong recovery as vaccinations spread, other countries are lagging behind, such as India and South Africa.

These contrasting trajectories weighed on the minds of ministers during their first physical meeting since the pandemic struck last year.

Beware of variants

“The recovery is characterized by wide divergences between and within countries and remains exposed to downside risks, especially the spread of new variants,” ministers and central bankers said.

Their sentiment reflected a creeping concern among financial officials in the advanced world that extraordinary stimulus measures combined with the most ambitious post-war health response may still be insufficient to record a crippling emergency in history.

As recently as last week, San Francisco Federal Reserve Chairman Mary Daly told the Financial Times that “one of the biggest risks to our global growth going forward is that we prematurely declare victory. Against the coronavirus.

Finance ministers also received a stern warning ahead of their meeting from International Monetary Fund chief Kristalina Georgieva, who sought to highlight some of their challenges.

“The world is facing a worsening two-way recovery, due to dramatic differences in vaccine availability, infection rates and the ability to provide political support,” she told them in a blog post.

In addition to acknowledging the dangers, finance ministers have also sought to make progress on outstanding issues that could shape the post-pandemic era, with mixed results.

Amid the breakthrough on carbon pricing, pressure from European countries for more ambitious language on zeroing net greenhouse gas emissions by 2050 has been thwarted by countries more dependent on fossil fuels. , according to people familiar with the matter.

Tax talks

Meanwhile, a global corporate tax overhaul agreed between 132 countries – including all members of the G-20 itself – has received further approval pending talks to end in October. The change would impose an overall minimum rate and allow governments to capture more revenue from multinationals in their jurisdiction.

“The world is ready to end the global race to the bottom on corporate taxation and there is a broad consensus on how to do it,” US Treasury Secretary Janet Yellen told the outcome of the meeting.

Even there, however, some issues remain unresolved. On Monday, Yellen will discuss his fears that a digital tax proposed by the European Union could undermine the global tax deal, during a meeting with finance ministers in the region.

One item missing from the press release concerned a proposal to redistribute $ 100 billion in IMF special drawing rights to help the poorest African countries. While the measure was approved by the Group of Seven last month, the G-20 only specified support for a general reallocation of $ 650 billion in SDRs requested by the IMF’s executive board.

Despite the importance of the analysis on the global economic outlook, officials have also not spoken much about threats of inflation. This is all the more remarkable given that many central bankers present separately specified the growing risk of a consumer price shock.

“We will also move to a higher inflation regime,” Hildebrand said. “It will take some time to settle in, so I don’t think we should pay attention to the very short-term numbers, but inflation will increase as we go through this transition phase.”

© 2021 Bloomberg LP


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