US criticises lack of action on global economic recovery

World’s biggest economy voices frustration as stock markets take a hammering globally.

The United States has expressed frustration that a number of countries were not doing enough to boost economic growth.

The criticism came as finance ministers from the world’s largest economies expressed determination to prevent a slide into another global recession in the face of tumbling stock markets.

The US treasury secretary, Jacob Lew, said governments in Europe, Japan and China were failing to deliver needed support.

“European leaders should focus on recalibrating policies to address persistent demand weakness,” he told the policy-setting committee of the IMF, which was scheduled to conclude its discussions today.

Mr Lew said Japan’s outlook was uncertain, with growth projected to remain weak this year and next. He said Japanese officials needed to carefully calibrate budget reductions and “move decisively to implement requisite growth-boosting structural reforms”.

He said China’s economy remained strong but risks had risen and the country needed to put more emphasis on consumption-led growth. China’s shares ended down on Friday as investors remained cautious ahead of September economic data due this week.

While Mr Lew did not mention Germany by name, it was clear his remarks on Europe focused on that nation’s reluctance to do more to stimulate growth. “Countries with external surpluses and fiscal flexibility” needed to do more to boost growth, he said. Germany, Europe’s largest economy, ran a large trade surplus last year.

Even some of Germany’s European partners have said countries in the 18-nation euro zone should shift away from the deficit-cutting policies Germany has championed and boost investment spending to avoid being stuck in Japanese-style stagnation.

Mr Lew’s comments came after stocks in major global markets closed out one of their worst weeks of the year on Friday, with an index of global equities hitting an eight-month low, and oil slumping to a four-year low as worries about slowing global economic growth darkened the investment outlook.

Major Wall Street stock indexes fell for the third straight week, with the S&P 500 suffering its worst week since mid-2012, as selling accelerating late in the day.

A raft of weak indicators from Europe and China in particular have collided with concerns about the US Federal Reserve’s plans to reduce monetary stimulus.

“In a vacuum of policy response, investors are selling first and asking questions later,” said Jim McDonald, the chief investment strategist at Northern Trust Asset Management.

“It smells like there is a high degree of involvement from systematic traders, rather than fundamental traders. The magnitude of the move has been disproportionate to the change in the fundamentals,” he said.

The Dow Jones industrial average fell 115.15 points, or 0.69 per cent, to 16,544.1, the S&P 500 lost 22.08 points, or 1.15 per cent, to 1,906.13 and the Nasdaq Composite dropped 102.10 points, or 2.33 per cent, to 4,276.24.

The MSCI all-country world index ended down 1.6 per cent to hit its lowest level since February, while the pan-European FTSEurofirst 300 index ended down more than 1.5 per cent. The MSCI Emerging Markets Index fell 1.8 per cent.

Concerns about global growth and rising oil production hit oil prices hard. Brent crude oil fell to $89.62 a barrel, after seeing its lowest level since December 2010 at $88.11. US November crude fell to $85.32 a barrel.

This month, the Federal Reserve is set to end its asset purchase programme that has been credited with boosting stock and bond markets over the past two years. Many observers doubt the recent stimulus measures unveiled by the European Central Bank will make up for the Fed programme that some believe has masked underlying issues with demand.

“To some level, people forget how markets trade back and forth – it’s not an ever-rising move with shallow pullbacks,” said Michael O’Rourke, the chief market strategist at JonesTrading.

It was against that background that G20 finance ministers and central bank presidents met for two days of talks that ended Frida where they unveiled plans for a global initiative to build roads, ports, railways and other infrastructure projects to help boost world growth by $2 trillion over the next five years.

The G20 officials were less successful in their efforts to deal with immediate threats from the slowdowns in Europe and China. The group did not issue a communique but individual ministers said economic problems were discussed.

“We as a group do not want to settle for mediocre growth,” said the Canadian finance minister Joe Oliver. “We don’t think we have to.”

* With agencies

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