# 1. Introduction

Following the global recession of 2009, most analysts expected growth in emerging market and developing economies (EMDEs) to return to pre-crisis rates. After a strong rebound in 2010, subsequent growth outcomes, however, have generally disappointed. Comparing consensus forecasts prepared in January and June since 2009, over 70 percent of aggregated EMDE forecasts were downgrades and on average it has been revised down by 0.2 percentage point. 2019 was no different, with a cumulative downgrade of 0.6 percentage point from January 2018. Growth in 2019 was at its weakest since 2015 and over a percentage point slower than average growth from 2000 to 2018. In addition to these repeated growth disappointments and forecast downgrades, downside risks to the outlook are rising.

This paper provides an up-to-date and comprehensive overview of the growth prospects, risks, and vulnerabilities facing EMDEs, including low-income countries (LICs). It contributes to the existing literature in several dimensions. First, the paper updates earlier WBG work on short- and long-term growth prospects, with granular regional and group perspectives (World Bank 2018a; IMF 2019). Second, it provides a comprehensive overview of vulnerabilities for the largest sample of EMDEs yet. Existing studies (e.g., IMF 2019; Chitu and Quint 2018; Dahlhaus and Lam 2018; and Rojas-Saurez 2015), for example, limit their analysis to a few, mainly large, EMDEs. In addition, this paper is the first study that compares specific domestic and external vulnerabilities across a comprehensive list of close to 300 previous EMDE crises since 1980, building on the work of Laeven and Valencia (2018).<sup>1</sup> The paper presents the following findings. First, EMDE growth has generally disappointed in the past decade, with repeated and significant forecast downgrades—and 2019 was no different. Almost 40 percent of EMDEs grew more slowly in 2019 than in 2018.

Sustained and robust per capita income growth, however, is needed for EMDEs to meaningfully reduce poverty, improve shared prosperity, and converge to advanced-economy income levels. Income gaps with advanced economies widened in 2019 in one-third of EMDEs, with more economies affected in the Middle-East and North Africa (MNA), Sub-Saharan Africa (SSA), and Latin America and the Caribbean (LAC). The prospects of today’s LICs, which are increasingly clustered in SSA, for progression to middle-income levels are dimmer than before the global recession, in part because of a rising number of countries affected by fragility, conflict, and violence; the prospect of weaker demand for primary commodities; and higher vulnerability to extreme weather, especially in agriculture-dependent economies (World Bank 2019b).

Second, while a cyclical upturn is expected over the next two years, near- and long-term growth prospects will likely remain subdued, and growth is expected to be slower than

> 1 This paper links both to the literature on quantifying vulnerabilities (e.g., Dahlhaus and Lam 2018; IMF 2018; Lee, Posenau and Stebunovs 2017; Feyen et al. 2017; Ahmed, Coulibaly and Zlate 2017; and Fisher and Rachel 2017; Ghosh 2016) and to the literature on early warning indicators of crises. See Frankel and Saravelos (2012) and Chamon and Crowe (2012) for extensive literature reviews, and Aziz and Shin (2015) or Berg et al. (1999) as examples.