THE dynamics of the world economy will be debated this week when central bankers and finance ministers from the Group of 20 gather in Sydney.
But for the first time since the G-20 became the primary forum for economic policy discussion in September 2009, it is officials from developing nations who are on the defensive as growth fades and markets tumble.
Emerging markets, like India, South Africa and Brazil, account for about 40pc of global gross domestic product. Slackening demand from these countries has a major impact on global prices. An erosion in confidence in these markets risks unleashing a "disinflationary impulse through the global economy," said Bruce Kasman, chief economist at JPMorgan Chase. International Monetary Fund chief Christine Lagarde calls it the "ogre" of deflation.
The US and Europe, in contrast, will be at the forefront in powering a pickup in global growth this year, to 3.7pc from 3pc in 2013, according to the IMF. But Ms Lagarde said rich nations can't be complacent.
"We see rising risks of deflation, which could prove disastrous for the recovery," she said in a speech in Washington on January 15.
"Deflation is the ogre that must be fought decisively."
One of the risks is that Federal Reserve chair Janet Yellen and European Central Bank president Mario Draghi could be forced to keep monetary policy loose for longer, increasing the attractiveness of their financial assets even at the threat of creating asset bubbles.
Mr Draghi appears to be playing the risk down – on February 6, he said that while "there's certainly going to be a subdued inflation", deflation is not a risk.
Europe is strengthening and price declines outside of food and energy are mainly limited to the so-called peripheral economies, which need to adjust to become more competitive, he said.
But strategists at Barclays have a very different view of the euro area, where inflation of 0.7pc is already less than half the ECB's target. The currency union, they calculate, is more vulnerable now to region-wide deflation than at any point since the final quarter of 2009, when the world economy was just starting to recover from the deepest recession since the Great Depression.
The ECB has more to worry about than any other central bank in the world, they said. ECB policy is looking too tight, budgets have been cut deeply and bank lending has yet to improve, they wrote in a report last week.
"The ECB is aware of the danger," said Philippe Gudin, head of European economics research at Barclays in Paris.
He predicts that the ECB will cut its 0.25pc benchmark rate in March as well as its deposit rate, and may even begin quantitative easing (the printing of money) at some point if the world suffers a shock such as a worsening emerging-markets crisis.