G20 warns of fragility of global economic recovery and rising risk of Covid-19 variants

Outlook has improved since April, but downside risks remain as coronavirus mutant strains continue to spread at pace

Italian Minister for Finance and Economy Daniele Franco on Saturday said the global economy is facing "downside" risks. Reuters

The world economic recovery is fragile and is at risk from a surge in coronavirus variants and the divergence in access to vaccines between developed and low-income countries, finance ministers of the world’s 20 largest economies said.

The global economic outlook has improved since G20 financial policymakers last met in April because of efforts to roll out mass inoculation programmes across countries and fiscal and monetary support packages. However, downside risks remain as the virus continues to evolve and variants such as Delta continue to spread, the G20 said on Saturday.

"The recovery is characterised by great divergences across and within countries and remains exposed to downside risks, in particular the spread of new variants of the Covid-19 virus and different paces of vaccination,” the group said in a joint communique after the two-day meeting of its finance ministers and central bank governors in Venice, Italy.

In their first face-to-face meeting since the pandemic began, finance chiefs of the G20 reaffirmed their “resolve to use all available policy tools for as long as required” to address the adverse consequences of the pandemic, especially on the most affected, such as women, youths and informal and low-skilled workers.

“We will continue to sustain the recovery, avoiding any premature withdrawal of support measures, while remaining consistent with central bank mandates – including on price stability.”

They also pledged to preserve financial stability and “long-term fiscal sustainability and safeguarding against downside risks and negative spill-overs”.

While they welcomed commitments to achieve equitable vaccination distribution, the G20 did not lay out measures as to how it plans to achieve that goal.

“The G20 recognises the role of immunisation as a global public good and reiterate its support for all collaborative efforts,” Italy’s Finance Minister Daniele Franco told a press conference on Saturday.

He urged both the public and private sectors to address the remaining gaps.

“Ministers and governors recognise the need to accelerate the delivery of vaccines, diagnostics and therapeutics to rapidly react to new variants and provide support to countries in delivering and distributing them,” he said.

While acknowledging the $50 billion proposed plan in new vaccine financing by the International Monetary Fund in partnership with the World Bank, the World Health Organisation and the World Trade Organisation, the minister said the G20 will “continue to work on this issue in the coming months and reach additional decision in October in the next [G20] meeting”.

Addressing finance ministers from the G20 economies on Friday, UN Secretary General Antonio Guterres said the one billion doses already pledged fell short of the 11 billion needed to vaccinate 70 per cent of humanity.

Support from the G20 for the $50bn vaccine plan could lead to trillions of dollars of gains from an accelerated economic recovery, IMF managing director Kristalina Georgieva said last week.

We will continue to sustain the recovery, avoiding any premature withdrawal of support measures, while remaining consistent with central bank mandates – including on price stability

G20 communique

Such a move would be "the best public investment of our lives and a global game-changer", as faster access to vaccinations for high-risk populations could “potentially save more than half a million lives in the next six months alone”, according to the fund's estimates.

“With a dangerous wave of a highly transmissible variant now making its way across the globe, the pandemic remains the fundamental risk facing the world,” Ms Georgieva said in a statement on Saturday.

The global economy is recovering broadly in line with the fund’s April projections of 6 per cent growth in 2021 after plunging into its worst recession since the 1930s. The economic outlook is much better than at the beginning of the year, with more than $16 trillion of fiscal and $9tn of monetary support by governments and central banks across the world helping the recovery. However, the latest data confirms a deepening divergence in economic fortunes, with a large number of countries falling further behind, the IMF said.

The finance ministers of the group on Saturday also backed a move to stop multinational companies from shifting profits to low-tax havens. The “historic" move paves the way for a G20 deal in October that could mean hundreds of billions of dollars more in tax being paid to national governments.

“After many years of discussions and building on the progress made last year, we have achieved a historic agreement on a more stable and fairer international tax architecture,” G20 ministers said in the communique.

“We endorse the key components of the two pillars on the reallocation of profits of multinational enterprises and an effective global minimum tax.”

More work needs to be done on the deal and they urged to “swiftly address the remaining issues and finalise the design elements within the agreed framework together with a detailed plan for the implementation … by our next meeting in October”.

The G20 invited all members of the OECD and G20 on Inclusive Framework on Base Erosion and Profit Shifting that have not yet joined the international agreement to do so.

The pact, which aims to establish a minimum global corporate tax rate of at least 15 per cent, is an attempt to squeeze more money out of technology companies like Amazon and Google, as well as other multinationals that are able to shop around for the most attractive tax base.

“I am very encouraged by the substantial progress made by the G20 at this meeting on a number of crucial issues … in particular, I want to recognise the G20’s support for the historic agreement on a minimum corporate tax rate,” Ms Georgieva said.

“This will help countries preserve their corporate tax base and mobilise revenue by ensuring that highly profitable companies pay their fair share everywhere.”