G20 Framework WG 4th meeting: Economic recovery risks and opportunities

On Thursday 29 April 2021, Members of the G20 Framework Working Group (FWG) gathered virtually for their fourth meeting under the Italian G20 Presidency. The Group is tasked to monitor the evolution of the global economic outlook, while coordinating policies aimed at underpinning a strong, sustainable, balanced and inclusive growth. Since the outbreak of the pandemic, the primary goal of the FWG is to advance economic policy proposals to sustain the global recovery and monitor potential macro-economic risks.

Following up on the advancements made by the G20 Finance Ministers and Central Banks Governors at their second official meeting, this fourth FWG meeting focused on the macro-economic risks related to adapting policy support to evolving circumstances.

In April, G20 Ministers and Governors agreed that policy support to G20 economies will continue, and this may also be extended as long as required. However, the economic support would need to move towards more targeted measures as economies reopen with an effective and cautious macro policy mix, subject to country-specific circumstances. As different countries will face different phases of the crisis, the path towards the recovery will be uneven.

The FWG Members discussed this topic and agreed to keep monitoring and assessing – with the support of the International Organizations - these risks on an ongoing basis as the recovery takes hold.

In 2020 and in these 2021’s first months, the scale and scope of fiscal support has varied across countries and encompassed direct and indirect financial support to labour market participants, businesses and households. While mass scale vaccination programmes have begun, the global economic outlook remains fragile and subject to downside risks. Going forward, policy making should be developed along different phases, with the development and the length of each phase depending upon the intensity of the crisis. The initial phase is characterised by continued emergency support, and is focused on helping countries emerging from the health crisis, alleviating hardship and minimising economic scarring from the pandemic.

Subsequently, once vaccines are sufficiently deployed, the health crisis begins to slowdown and restrictions can be reduced, it will be essential to refocus the support in a bid to safeguarding the economic recovery and steer it towards a more sustainable and inclusive growth pattern.

Finally, it will be the time for investing in the future, ensuring a sustainable macro policy mix. The support should be lifted gradually, taking measures to warrant fiscal sustainability.

Throughout all these phases, it will also be crucial to address pre-existing global economic challenges, including the policies required to raise productivity and address climate change. It will be relevant to learn from the crisis. For instance, the pandemic has showed how digital transformation can be a driving factor for sustaining economic recovery and promoting productivity growth in the post-COVID-19 world. The contribution of digitalisation and green economy to foster a sustainable recovery was also discussed thoroughly in previous G20 high-level meetings.

Looking ahead, it will be important that G20 members work together to assess and share experiences on macroeconomic policy support settings to minimize negative spillovers. In particular, a common approach to framing a clear communication of policy across countries might provide greater clarity to members regarding the global policy landscape that they have to operate in, and accordingly better manage the policy effects. The FWG also called on the International Organizations to continue to monitor these risks, and associated early warning signs, and provide regular updates to FWG and the wider G20.

Discussions among FWG Members will continue in the next FWG meeting on 9 and 10 June, a month before the July G20 Finance Ministers and Central Banks Governors meeting in Venice.