G7 Finance Ministers Warn of Economic Uncertainty Amid US Debt Crisis and Russia-Ukraine Conflict, Agree to Adopt Mechanism to Diversify Supply Networks

Niigata (Reuters)

Yesterday, the Group of Seven finance ministers warned of increasing global economic uncertainty, at the end of a three-day meeting overshadowed by the US debt ceiling crisis and the repercussions of the Russian invasion of Ukraine.
The meeting took place in Niigata, Japan, amid concerns about a US debt default fueling uncertainty surrounding the global economic outlook, which is already clouded by high inflation and a crisis in US banks.
Multiple traumas
“The global economy has shown resilience in the face of multiple shocks, including the (Covid-19) pandemic and Russia’s war on Ukraine, and associated inflationary pressures,” the finance ministers said in a statement after the meeting.
“We need to remain vigilant and be agile and flexible in our macroeconomic policies, amid increasing uncertainty over the global economic outlook,” the ministers said in the statement.
The statement did not refer to the crisis related to the US debt ceiling, which the markets are exposed to, as well as the increase in borrowing costs due to the monetary tightening policies of the US and European central banks.
US Treasury Secretary Janet Yellen said on Friday that she will meet with top Wall Street bankers this week to discuss a potential US default, which would be the first since 1789.
World Bank President David Malpass said: The possibility of the United States defaulting on its debt, for the first time in its history, will increase the problems facing the slowing global economy.
“This is clear, the crisis that the world’s largest economy is exposed to will negatively affect everyone,” Malpass told Reuters on the sidelines of the meeting.
Regarding problems in the banking system, the statement said, policy makers will address “gaps in data, oversight and regulation in the banking system”.
Finance ministers maintained their assessment issued in April that the financial system is “resilient” thanks to financial regulatory reforms implemented after the 2008 global financial crisis.
The statement showed that while warning of the continued “increasing” of inflation, the central banks of the Group of Seven reaffirmed their commitment to price stability and ensuring that inflation expectations remain sober.
Enhance surveillance
The participants again condemned Russia’s invasion of Ukraine, and pledged to strengthen monitoring of cross-border transactions between Russia and other countries.
Discussions also touched on matters related to China, as Japan, which chaired the meeting this year, led efforts to diversify supply chains and reduce heavy dependence on the second largest economy in the world. Finance ministers set a deadline by the end of the year to launch a new plan to diversify global supply chains in the statement.
There are perceptions that the new plan will include the Group of Seven providing aid to low- and middle-income countries so that they can play a greater role in the supply chains of energy-related products, such as mineral refining and processing of manufacturing supplies.
Adopting a mechanism to diversify supply networks
Yesterday, the G7 countries agreed to adopt a new tool by the end of 2023 “at the latest” to diversify international supply networks, in an effort to reduce their dependence on China in this strategic field.
This mechanism provides for granting financial aid to middle- and low-income countries, exchanging skills and establishing partnerships with them, to help them assume an increasingly important role in this basic mechanism of global industry, according to a statement issued by the finance ministers of the seven countries at the end of a three-day meeting in Niigata, central Japan.
The mechanism, whose major axes were revealed in April, will be implemented in cooperation with the World Bank and other relevant international organizations, according to the statement.
Japanese Assistant Finance Minister Masato Kanda told reporters that the amount of money that will be allocated to the mechanism for “strengthening a supply network of resistance and inclusiveness” or “Rise” according to the initials of its name in “English” has not yet been determined.