From 2010-2015, the percentage of people living in poverty in SSA will fall by 6.6 and 7.7 percentage points relative to the PPP$1.25/day and PPP$2.00/day poverty lines, respectively. During the following decade, the more evenly distributed growth trajectory will have significant welfare effects - poverty headcounts in Africa will fall by an additional 11.8 and 13.8 percentage points. All told, the poverty rate by 2025 will fall to 30.1 percent relative to the $1.25/day threshold and 43.2 percent relative to the $2.00/day benchmark.

# **Alternative scenarios: Adverse shocks**

## Prolonged recession in high-income countries (HICs)

The first stress test is a prolonged recession in the HICs and the results indicate it has negligible impact on SSA. In this scenario GDP per capita growth in the HICs averages 0.6 percent over 2010-2025 or roughly half of the growth rate of the baseline. Real consumption in the HICs drops significantly, while world oil prices drop only slightly as lower demand from high income countries is largely replaced by increasing demand from developing countries in response to lower prices. We note that there is very little impact on SSA in terms of output: the volume of regional GDP in 2025 is less than 0.5% lower than in the baseline with the highest impact on Nigeria being slightly higher than the regional average. Similarly the impact on real consumption is rather small. This is mainly due to terms of trade changes with oil exporters as Nigeria and the rest of SSA losing a bit more of real consumption than other SSA countries (up to 1% by 2025). The results confirm the transformative and enduring change in the global economy, with the rise of emerging market economies like China, India and other developing countries in Africa and elsewhere rising to the helm of the world economy and providing multi-polar sources of global growth (World Bank 2011). In the prolonged recession scenario the world share of SSA in 2025 would reach 2.2%, slightly higher than in the baseline (2.1%). The growth implications of a prolonged recession in the HICs for other developing countries do not exceed 0.5% deviations from the baseline.

## Prolonged recession in high-income countries coupled with a collapse of financial flows

However, a prolonged recession in high-income countries that is coupled with a collapse of financial flows could have much larger consequences for SSA. A prolonged recession could trigger renewed financial problems in high-income countries, which could lead to deleveraging globally, and a breakdown in international capital flows. For this scenario to take place we would need to assume rapid financial development in emerging economies that would improve capacity to absorb their capital surpluses. This scenario seems rather adverse, but it is done as a thought experiment to illustrate the importance of capital flows. Without external financing investment in several countries would drop significantly. Even so, a few resource-rich countries with an initial outflow of capital would be forced to invest the excess capital at home and their GDP would likely expand in this scenario. The investment share of GDP by 2025 is expected to be between 3-10 percentage points lower than in the baseline for most SSA countries (see Figure 7 ). As a result GDP volume in 2025 would be significantly lower for several SSA countries, except for the net capital exporters like Nigeria or Zambia where investment rates go up in the autarkic state. By 2025 regional GDP would be 1.3% lower than in the baseline, but this masks a dramatic drop of the GDP volume of up to 20% in countries such a Malawi and Mauritius, or around 10% in Mozambique, Uganda 9