G20 financial chiefs flag global economic 'soft landing', warn of risks from war

G20 financial leaders said on Friday the global economy was likely heading for a "soft landing", but warned wars and escalating conflicts could endanger this outlook, while more global cooperation could make growth stronger.

In a joint communique after a two-day meeting in Brazil, finance ministers and central bankers from the Group of 20 major economies also committed to resist protectionism in trade and stressed the need to reduce economic inequalities.

Last month, the World Bank forecast that the global economy would avoid a third consecutive decline in growth since a major post-pandemic jump in 2021, with 2024 growth stabilising at 2.6%, in line with 2023, but warned that overall output would remain well below pre-pandemic levels through 2026.

"We are encouraged by the increasing likelihood of a soft landing of the global economy, although multiple challenges remain," the communique said. "Downside risks include wars and escalating conflicts," it said.

By avoiding explicit mention of the conflicts in Ukraine and Gaza, diplomats have worked to sidestep the disagreements between Russia and major Western nations that derailed a consensus at the finance chiefs' gathering in February.

To defuse the disagreement, Brazil drafted a chair statement on geopolitical issues, stressing that these matters will be addressed by G20 leaders in November.

"The G20 made a wise decision to put geopolitical issues in their place to allow the cooperation agenda to move forward," Brazil Finance Minister Fernando Haddad told a news conference. 

Haddad also hailed the group's first-ever declaration calling for cooperation to effectively tax the world's largest fortunes, although that separate joint statement papered over disagreements about the right forum to advance the agenda.

The G20 communique said economic activity had proved to be more resilient than expected in many parts of the world, but the recovery had been highly uneven across countries, contributing to the risk of economic divergence.

BALANCE OF RISKS

The document flagged risks to the economic outlook that remain broadly balanced, with more economic cooperation, faster-than-expected disinflation and technological innovations, like the safe development of Artificial Intelligence (AI), cited among upside risks.

But at the same time AI tech could also turn out to be a downside risk to growth, the document said, along with economic fragmentation and persistent inflation keeping interest rates higher for longer, extreme weather events, and excessive debt.

Climate change and significant loss of biodiversity were key topics of concern, the G20 financial leaders agreed, warning that if poorer nations had to shoulder more of the cost of fighting climate change, it would make global inequality worse.

"We reiterate the understanding that the cost of inaction is greater than the cost of action," the communique said.

The document also stepped-up language calling for a reform of the International Monetary Fund, that would give emerging and developing economies a bigger say in the lender of last resort.

The G20 communique underlined the "urgency and importance of realignment in quota shares to better reflect members' relative positions in the world economy."