G-7 finance head cautions about worldwide uncertainty.

Global Economic Uncertainty Heightens as G-7 Finance Leaders Meet

U.S. Debt Ceiling Stalemate and Russia’s Invasion of Ukraine Overshadow Meeting

Finance leaders of the Group of Seven (G-7) rich nations warned of heightening global economic uncertainty on Saturday as they wrapped up a three-day meeting overshadowed by a U.S. debt ceiling stalemate and fallout from Russia’s invasion of Ukraine.

G-7 central bank chiefs also vowed to combat “elevated” inflation and ensure expectations on future price moves remained well-anchored, a sign many of them will not let their guard down against stubbornly high inflation.

The gathering in the Japanese city of Niigata came as worries over a U.S. default fuelled uncertainty over the global outlook, already clouded by recent U.S. bank failures and signs of slowdown in China’s economy.

• The global economy has shown resilience against multiple shocks, including the COVID-19 pandemic, Russia’s war of aggression against Ukraine, and associated inflationary pressures,” the finance ministers and central bankers said in a communique after the meeting.
• “We need to remain vigilant and stay agile and flexible in our macroeconomic policy amid heightened uncertainty about the global economic outlook.”

The communique made no mention of the U.S. debt ceiling stalemate, which hits markets at a time when borrowing costs are rising because of aggressive monetary tightening by U.S. and European central banks.

U.S. Treasury Secretary Janet Yellen, who has said a first-ever U.S. default could occur within weeks if the impasse is not resolved, told Reuters on Saturday the was “more difficult” than in the past but said she remained hopeful a solution could be found.

G-7 Finance Leaders Pledge to Tackle Banking System Gaps

Seeking to reassure investors in the wake of recent U.S. bank failures, the G-7 finance chiefs retained their April assessment that the global financial system was “resilient.”

But they pledged in the communique to tackle “data, supervisory, and regulatory gaps in the banking system”.

Many central banks face an inflection point, with aggressive interest rate hikes beginning to cool growth and unsettling the banking system.

• The group reiterated its condemnation of Russia’s invasion of Ukraine and pledge to strengthen monitoring of cross-border transactions between Russia and other countries.
• China has also been on the G=7′s minds, with Japan spearheading efforts to diversify supply chains and reduce their heavy reliance on the world’s second-biggest economy.

The finance leaders set a year-end deadline for launching a new scheme to diversify global supply chains in their communique.

The new scheme envisages the G-7 offering aid to low- and middle-income countries so they can play a bigger role in supply chains for energy-related products, such as by refining minerals and processing manufacturing parts.

“Diversification of supply chains can contribute to safeguarding energy security and help us to maintain macroeconomic stability,” the communique said, adding that the scheme will be launched “by the end of this year at the latest.”

The discussions among the finance leaders will lay the groundwork for the G-7 summit starting on Friday in Hiroshima, where concern about China’s use of “economic coercion” in its dealings abroad will be among key topics of debate.