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MEXICO CITY (Reuters) - The world's leading economies will give themselves a bit more wiggle room to meet targets for cutting budget deficits rather than risk aggravating a slowdown in many countries, chief among them the United States.
Meeting a day before the U.S. presidential election, the Group of 20 countries worried that their target to cut in half the budget shortfalls of advanced economies by the end of next year might hurt the struggling global economy.
"We will ensure the pace of fiscal consolidation is appropriate to support growth," G20 policymakers said in a communique after a two-day meeting in Mexico.
The target for cutting deficits was agreed at a summit in Toronto in 2010, when the global economy seemed to be over the devastating financial crisis in the previous two years.
It now looks out of reach for some economies, including the United States, as growth has slowed.
The U.S. budget gap surpassed $1 trillion for the fourth year in a row in the fiscal year 2012. The deficit was equivalent to 7.0 percent of the country's economic output.
While the United States needs to bring its deficits under control, G20 countries also want it to avert a barrage of tax hikes and spending cuts from January 1. They were penciled in last year to show Washington could tackle its fiscal problems.
Those measures, dubbed a "fiscal cliff", could tip the U.S. economy back into recession unless Congress cuts a deal quickly after the presidential and congressional elections on Tuesday.
"There may have to be some modification with respect to the deficit targets," said Canada's finance minister, Jim Flaherty.
"That may not be compatible for the Americans with their fiscal cliff solution, whatever it is, so there may have to be more time there," he told reporters, stressing countries need to show they can eventually fix their fiscal problems over time.
A European official said the flexibility could alternatively come in the form of less rigid definitions of what constitutes a public deficit, such as allowing some countries to exclude the costs of recession - higher unemployment and welfare costs and lower tax revenues - on their public accounts.
Other top policymakers said the emphasis in the talks in Mexico City was on ways to boost demand in their economies.
"The dominant focus in the discussion among the ministers and governors was the imperative of supporting demand. There was broad agreement that this requires different things from different members of the G20," one of the policymakers said.
The communique said G20 members would ensure that public finances are on "a sustainable path" and in line with the medium-term commitments made in 2010. At the Toronto summit, G20 leaders pledged to stabilize public debt by 2016 in most advanced economies as well as cut budget deficits.
Countries like the United States, Britain and Japan are struggling to meet those deficit targets. As economies remain weak, there is little appetite for heavy spending cuts.
Big European countries, which have done better at tightening their belts, are now leading the way in pressing the United States to steer away from the fiscal cliff, which many see as the biggest short-term threat to global growth.
"The clock is ticking, the cliff is getting closer and closer. It is a question of less than two months and accidents can happen," a senior G20 official said before adding the group is confident the U.S. Congress will find a bi-partisan solution.
Chile's finance minister, Felipe Larrain, also said there was an assumption that a deal would be found.
"If we're not able to resolve the cliff, that could be the tipping point for a much more complicated scenario in the world economy," he told Reuters.
The G20 communique said the United States "will carefully calibrate the pace of fiscal tightening to ensure that public finances are placed on a sustainable long-run path while avoiding a sharp fiscal contraction in 2013."
In a bid to show their commitment to keeping their finances in order over the long term, advanced G20 countries also said they would come up with "credible and ambitious" debt targets beyond 2016 in time for a summit of leaders of the group next year.
Alan Ruskin, global head of G10 FX strategy at Deutsche Bank in New York, said the message from the meetings seemed to be that policymakers wanted to show they were serious about long-term credibility while pulling back a bit on austerity now.
"That would be something that reinforces credibility in the medium term, so that markets don't push up bond yields and undermine growth in the short term," he said. "The U.S. is putting out a message that it wants to be credible in the long term but in the short term it believes growth will do more good."
The G20's consensus of four years ago, which helped stave off the risk of a new depression, has given way to persistent differences over issues such as spending to boost growth and the right pace of belt-tightening to tackle high debt levels.
The global economy faces "elevated" risks, including Europe's debt crisis - centered on Spain and Greece - and potential problems in Japan, the communique said.
"Global growth remains modest and downside risks are still elevated, including due to possible delays in the complex implementation of recent policy announcements in Europe, a potential sharp fiscal tightening in the United States, securing funding for this year's budget in Japan, weaker growth in some emerging markets," the communique said.
The wording on Europe referred to differences within the euro zone over how to build a banking union, considered an important way to bolster the bloc's shaky financial system, during 2013.
The group will also recommit to implementing tough new bank capital rules on time. The rules, known as Basel III, are the world's response to the financial crisis and are set to be phased in starting in January.
U.S. and European regulators have not yet finalized their versions of the rules, which had prompted speculation that the timetable could be pushed forward.
Few expected major agreements in Mexico with heavyweights such as U.S. Treasury Secretary Timothy Geithner, European Central Bank chief Mario Draghi and top Chinese officials all skipping the meeting. Geithner is expected to stand down after the U.S. election, even if President Barack Obama is re-elected.
Additional reporting G20 team in Mexico City; Writing by William Schomberg; Editing by Kieran Murray and Chizu Nomiyama