G20: Global Economy Sees Chance of Soft Landing

The global economy has an increased chance of a soft landing, finance ministers said in a draft of the G20 final communique at a meeting this week in Brazil, citing faster-than-expected inflation slowing as one of the risks, according to Bloomberg.

“We note that the probability of a soft landing in the global economy has increased,” said the draft statement dated February 23, which was seen by Bloomberg News.

She continued: “The risks threatening the global economic outlook have become more balanced. Upside risks include a faster-than-expected deceleration of inflation.

The text is not final, and its formulation is subject to intense negotiations in Sao Paulo, before the arrival of finance ministers on Wednesday. The G20 meeting has already been marked by sharp divisions, especially over the wars in Ukraine and Gaza that have roiled global politics. The draft text refers to “conflicts in many regions of the world” among the challenges, without naming them, as well as “geoeconomic tensions.”

The statement reflects a relatively optimistic view of the global economy, which has struggled in recent years to overcome the impact of the pandemic, high inflation and a sharp increase in interest rates.

“Inflation has subsided in most economies, thanks largely to appropriate monetary policies, easing supply chain bottlenecks” and moderate commodity prices, the G20 draft said.

Last month, the International Monetary Fund raised its forecast for global economic growth in 2024 to 3.1%, citing a better-than-expected expansion in the United States and financial support from China.

At a press conference in Sao Paulo on Tuesday, Treasury Secretary Janet Yellen emphasized the role played by the United States, saying that “America’s path to a soft landing has supported global growth.”

Yellen acknowledged risks to the outlook including protracted conflicts in Ukraine and the Middle East, which have pushed up commodity prices and disrupted supply chains, and debt problems plaguing lower-income countries.

Yellen noted that “inflation is starting to decline in many countries,” while stopping short of suggesting that lowering interest rates may be appropriate now.

A dispute has raged among G20 officials over the language used to describe military conflicts such as the Russian invasion of Ukraine, which has also hit economies around the world.

The group includes Russia and China, in addition to the United States and Western allies. Monday's preliminary session witnessed a day of haggling over how to point out the economic impacts and risks of war.

It is expected that ministers will try to separate some controversial topics in order to prevent discussion of other issues from being neglected.

Brazil, which is hosting the session in São Paulo's famous Pinal Center amidst lush gardens, is pushing an agenda that includes poverty, sustainable development, and reform of global institutions.

It is unclear how much this agenda will be achieved by coming together amidst all the divisions. The final statement is usually where ministers set out their agreed view on the global economy and the challenges ahead.