By Krista Hughes and Louise Egan
MEXICO CITY (Reuters) - Central bank stimulus is not enough to fix the ailing global economy and governments must increase their efforts to boost growth, Group of 20 officials agreed on Monday.
Deputy finance ministers and central bankers of the G20, which is made up of wealthy nations and leading emerging economies, met in Mexico City on Sunday and Monday amid a deepening sense of doom around the global economic outlook.
An index of German business sentiment fell to its lowest since early 2010 this month, showing that even the strongest of Europe's economies is succumbing to an economic downturn despite the European Central Bank's recently announced bond-buying plan. Growth is slowing in China and the United States, too.
Mexican Deputy Finance Minister Gerardo Rodriguez said new asset-buying plans from the ECB, the Bank of Japan and the U.S. Federal Reserve had helped to calm markets but were not enough.
"There's worry about the (economic) environment and there's a conviction that monetary policy by itself is not sufficient," Rodriguez told Reuters on the sidelines of the meeting.
Mexican central bank board member Manuel Ramos said the extra stimulus did not cancel out downside risks from the euro zone's debt crisis, impending fiscal tightening in the United States and slowing growth in emerging markets.
"Monetary relaxation buys time, but the risks are still there," he told a news conference after the meeting.
Other delegates who spoke on condition of anonymity said that given increased concern about the global outlook, the Fed's bond-buying program - criticized by emerging market powers in the past - was a necessary evil.
The Organisation for Economic Cooperation and Development cut its growth forecasts for major developed economies this month, and the International Monetary Fund warned it was set to scale back expectations for global growth, too.
OECD Chief Economist Pier Carlo Padoan, who attended a seminar about the world economy before the G20 gathering, said the outlook was clearly worse since the leaders' summit.
"The U.S. is weaker, the emerging economies are visibly weaker, and the euro area crisis has not improved so far," he said in an interview on Friday.
LIMITED ROOM TO MOVE?
Rodriguez urged governments to speed up steps promised at a June G20 leaders meeting to boost demand, support growth and cut unemployment, given the deteriorating outlook, but for many the room to move is limited.
Italy was forced to sharply raise budget deficit projections after revisions to growth forecasts showed the economy is expected to shrink by 2.4 percent this year, double its previous forecast, and there is no sign growth will return in 2013.
Spain, another country in the spotlight, has just raised value-added taxes and might freeze pensions as part of a deal for support from its euro-zone partners - moves that are needed to regain investor confidence but will likely deepen a recession that began at the end of last year.
Delegates said emerging market economies had not made a big issue of a possible revival of the "currency wars" that followed previous rounds of central bank stimulus when countries tried to avoid cheap money pushing up their currencies.
Before the meeting, Brazil vowed it would not let its real currency appreciate as a result of aggressive monetary stimulus in advanced economies, but G20 officials said other emerging economies did not raise similar concerns.
"There was an almost resigned reaction to the monetary easing - on the basis that other measures that should have been taken were not, so it was up to the central banks to do something," one G20 official at the meeting said.
"There is a perception that the spillover effects should be smaller than the last time."
Unlike the last time the Fed undertook a round of stimulus in late 2010 and early 2011, some emerging market currencies, including China's yuan and Russia's rouble, are depreciating.
Brazil has also cut rates to a record low of 7.5 percent in contrast to the 10.75 percent benchmark rate it had in late 2010, making the country less attractive as an investment destination and a less likely target of speculative flows.
Mexico's Rodriguez said countries had agreed that improved trade and more transparency in markets could help tackle high food and commodity prices, which have pushed up inflation.
Turning to the subject of International Monetary Fund quota reform, Rodriguez said there was widespread agreement that gross domestic product (GDP) should play a bigger role in how emerging markets are represented in the IMF.
The quota formula currently includes a blend of GDP at market rates and GDP at purchasing power parity (PPP) as well as takes into account a country's trade and international reserves.
(Additional reporting by Alonso Soto in Brasilia; Editing by Kenneth Barry, James Dalgleish and Jan Paschal)