Finance ministers and central bank chiefs from the Group of Seven leading economies will meet in the English countryside on Friday for talks on spurring growth, amid US-Europe divisions over the scale of austerity.
The G7 — comprising Britain, Canada, France, Germany, Italy, Japan and the United States — is expected to build on last month’s wider Group of 20 meeting, while looking ahead to next month’s G8 heads of state summit in Northern Ireland.
Britain is this year president of the G8 — or G7 plus Russia — and is using the platform to also push for greater multilateral co-operation in tackling tax evasion.
The foreign exchange market is also likely to feature high on the agenda after the dollar topped 100 yen for the first time in more than four years overnight, as Tokyo’s aggressive stimulus efforts to reflate the Japanese economy continue to depress its currency.
Ahead of the two-day G7 meeting at Hartwell House, in Buckinghamshire, north of London, the United States has meanwhile called on Europe to further ease fiscal consolidation to avoid more economic damage.
Europe’s leaders have been successful at removing some of the more immediate risks in the eurozone debt crisis, a senior US Treasury official told reporters.
The European Union recently granted France two extra years to meet its deficit target on condition that it pursues reforms. But France has made clear that it does not want to go down a path of deep austerity as seen in neighbouring eurozone countries Italy and Spain.
A French source told AFP on Thursday that “it is counter-productive to set (deficit-reduction) targets that are impossible to reach because it will destroy the motor” of the economy.
And the International Monetary Fund, while welcoming efforts by indebted nations to cut state spending, has urged Britain to lessen the pace of its austerity programme to support the country’s fragile economic recovery.
He added that participants will also be “talking about the fiscal issues we all face and how we can make sure that our public finances are in good order”.
Prime Minister David Cameron insisted Thursday that Britain was not bringing down the deficit “at an irresponsible pace”.
He added: “We’re doing it at a sensible and measured pace. It absolutely has to be done and it will be done.”
Victoria Clarke, an economist at Investec financial group, said that at the meeting Osborne might seek “support from other fiscally cautious members such as Germany, to continue with his fiscal policy plan rather than relax the pace of austerity as some, including the IMF, have been suggesting”.
The G7 nations, which together produce about half of the world’s economic output, are slowly recovering from a late 2012 slowdown, the OECD said recently, with Japan and the United States leading the way, ahead of a struggling, two-speed eurozone.
Emerging economies were tipped to remain by far the strongest growth performers, with China expected to expand by well more than 8.0 percent in the first half of 2013, the Organization for Economic Development and Cooperation said.
Forecasts remain very uncertain however, the OECD added, with new-found buoyancy on financial markets yet to feed through to the wider economy.
The US and Frankfurt stock markets have raced to record high points this week following positive economic data out of the United States and Germany, but some analysts believe the rally will be short-lived due to eurozone debt worries.
The G7 “narrative on the global economy is unlikely to change significantly,” said RBC Capital Markets analyst Adam Cole.
In a fresh development overnight in New York on Thursday, the dollar vaulted past the key 100-yen barrier for the first time since April 2009.
Last month, G20 nations gave the green light to aggressive stimulus by Japan, despite recent heavy criticism in Europe that the Asian country is forcing down the yen’s value to help its exporters.
Japan’s policy of monetary easing has this year led to sharp falls in the value of the yen, sparking fears of a global currency war in which rival nations drive down their units to gain a trade advantage.
Japan maintains however that the policy is aimed at bringing growth and overcoming deflation, a major concern in the world’s third largest economy.