When the top economic officials from the world’s 20 leading nations gather in Sydney this weekend, they will be spared the sense of crisis that has loomed over the most recent G20 meetings. The global economy is humming along, driven by China and by the incipient recovery of parts of the rich world, most notably Britain, the US and Japan. Turmoil in the eurozone has receded, with bond yields in peripheral countries finally back near pre-crisis levels. Even the jitters across emerging markets which troubled investors earlier this year seem to have calmed down momentarily.
To some extent, the improvement in economic conditions has been mirrored in the state of global governance. Protectionism remains a distant threat and an agreement in Bali last December has breathed new life into the World Trade Organisation. Global imbalances, especially between China and the US, have also narrowed. While this was not the consequence of co-ordinated action by governments, the improvement has taken some heat off the relationship between Washington and Beijing.
However, on one of the defining economic issue of our times – how to handle the transition to a world of higher interest rates – the relationship between global central banks remains frosty. Raghuram Rajan, governor of the Reserve Bank of India, has called on his colleagues at the US Federal Reserve to take into account the difficulties of the developing world when tapering their $85bn-a-month asset purchases. In her testimony to Congress last week, however, Janet Yellen, the Fed chairwoman, turned a deaf ear to the plea by her opposite number in Mumbai, making it clear that US monetary policy will depend on economic conditions in America alone. Still, the issue is far from settled and is likely to dominate conversations in Sydney.