At the helm of the global economy

The G20 summit is designed to set the overall trajectory for the recovering world economy

G20 leaders at the annual summit that recently ended in Australia. Photo: Ian Waldie / Bloomberg

For all the headlines about economic growth targets, Russia's increasing isolation over Ukraine and photo­graphs of some of the world's most powerful people cuddling koalas, the real legacy of the G20 summit in Australia is likely to be far more significant.

The true importance of this meeting of the world’s biggest economies, representing more than 80 per cent of global output and international trade, will emerge in the cumulative impact of all the bilateral agreements and deals, many of which are made on the sidelines rather than in the main meeting.

These proposals include a free trade deal between Australia and China, Saudi Arabia's investment in India's strategic oil reserves and suggestions that the impasse between India and the rest of the world over the World Trade Organisation's Bali package might finally be resolved.

While these are all the result of negotiations that began long before the delegates gathered in Brisbane, they reflect the nature of what happens when those representing or steering major economies find areas of mutual benefit.

That is not to understate the primary announcement that the G20 members will aim to boost growth by two percentage points over the next five years. The global financial crisis of 2008 still casts a long shadow over the world economy, with Japan slumping back into recession and British prime minister David Cameron’s warning that the eurozone could do so too.

But the G20 has always been less about adhering to strict pledges – not a single member state, for example, met the 2010 summit’s pledge to halve budget deficits within three years – and more about setting overall trends for the global economy.

One of these trends is a shift away from the G7, the original organisation made up of the US, Canada, Japan and the major European economies that formed the core of what became the G20 in 1999. With a greater emphasis on developing economies, the G20 is now the key forum. This summit may mark the moment when that new reality was fully accepted by the traditional world powers.