The Finance Ministers and Central Bank Governors of the G-20 said that the global economy continues to expand at a solid pace, but they also called for reforms to sustain expansion.

At their eighth meeting in Melbourne, Australia, the G-20 members noted that the world economy continues to expand with growth above its long-term average for the fourth consecutive year. The outlook remains positive, they said.

Global economic growth is expected to slow slightly from the rapid pace of the past few years, they noted, with growth in industrialized countries expected to moderate slightly from its recent strong pace. Among emerging market countries, output growth is expected to remain strong, with key economies like China and India continuing their rapid expansion, they added. “Above average growth in the global economy has seen spare capacity decline which, combined with buoyant energy and mineral prices, has increased the risks to inflation,” they cautioned.

“Maintaining strong world growth and containing inflation will require ongoing adjustments to monetary and fiscal policies while ensuring appropriate exchange rate flexibility and structural reform,” the G-20 said. “We need to take advantage of the present strength in the global economy to get policy settings right. Faced with potential inflationary pressures, the normalixation of monetary policy underway in many G-20 countries will need to continue.”

“Fiscal policy needs to ensure that public-sector balance sheets are not vulnerable to slower revenue growth and higher expenditure when growth rates resume more normal trajectories, and that there is sufficient room for policy to respond if growth slows more sharply than currently anticipated,” they added. “We are determined to implement these policies, which are also required to enable global imbalances between countries to unwind in an orderly manner.”

The ministers and governors also stressed that stable global economic growth depends on open trade. G-20 members warned of the threat to global prosperity from rising protectionism in trade and investment. “The success of the Doha Development Round is essential to securing freer, more open trade, reducing the risk of economic and financial instability, and achieving faster economic growth, development and sustained reductions in poverty,” they said. The G-20 members called for an early resumption of WTO negotiations and the achievement of an ambitious outcome for the benefit of all.

They also noted that global demand for energy and minerals commodities is set to increase significantly over coming decades driven by a strong world economy, rising incomes, and ongoing industrialization and urbanization in many economies. “While physical stocks exist to meet demand and investment is increasing, the expansion of supply to date has struggled to keep pace with demand growth, resulting in significant increases in prices,” they said. “We agreed that enhancing global trade by strengthening markets, and ensuring sustainability by promoting investment and encouraging efficiency, are the best ways to deliver lasting resource security.”

They also agreed that further reform of energy subsidies is a priority in order to improve fiscal sustainability, better target poverty, and ensure that price signals work to expand supply and induce efficiency.

The officials also discussed how the current resources boom can be harnessed for growth and development, highlighting the importance of sound domestic policy and effective governance for boosting investment. “We welcomed further work on principles for the efficient and effective governance of extractive firms, both private and state-owned,” they noted.

“Long-term resource security and dealing with key global challenges, such as climate change, require effective international policy frameworks and actions,” they said. “Well-functioning markets — characterized by clear price signals, open trade and investment, market transparency, good governance, and effective competition among firms — will support investment in new supply, bring forth efficiencies and new technologies, encourage the use of alternative and renewable energy sources, and allow knowledge and resources to flow across borders.”

They also focused on the implications for financial markets of demographic change. “Well-functioning and open financial markets can help smooth the economic impacts of demographic change. Improving the efficiency of financial markets and promoting financial innovation are important in facilitating adjustment. We also agreed to work together to raise people’s awareness of their retirement income needs and improve their understanding of the available options,” they said.

The G-20 also said that they believe that the effectiveness and legitimacy of the IMF and World Bank must be enhanced through comprehensive governance reform and strategic policy review.