2020 (World Bank 2020). However, as they emerge from the current deep recession, they will again face the challenge of rebuilding the resilience of their economies to shocks and lifting long-term growth prospects.

Against this backdrop, this paper reviews macroeconomic developments in EMDEs before, during and after the 2009 global recession by addressing the following three questions. First, how strong were economic fundamentals in EMDEs prior to the 2009 global recession? Second, how did EMDEs fare during the global recession and in its aftermath? Finally, what explains the sluggish post-recession recovery in EMDEs?

The paper makes several contributions to a growing literature drawing lessons from the global financial crisis and the 2009 global recession. First, it expands on earlier studies of the global recession by introducing an EMDE focus and extending the horizon of the discussion. Previous studies examined the initial impact of the global financial crisis on EMDEs but did not reach far into the post-crisis period.<sup>2</sup> Other studies focused on the international transmission of the crisis with an advanced-economy focus.<sup>3</sup> Other studies examined the transmission from the financial crisis to the real economy in advanced economies (Ball 2014; Bernanke 2018; Gertler and Gilchrist 2018; Perri and Quadrini 2018) and the lasting nature of the macroeconomic effects of the financial crisis (Chen, Mrkaic, and Nabar 2019; IMF 2018). Second, it delves deeper into developments in specific EMDE regions and the largest emerging markets. Third, it draws lessons from the experience of the global recession in 2009 that are relevant for today’s policy challenges.

The paper reports the following findings. First, it demonstrates that prior to the 2009 global recession, EMDEs benefitted from broad-based and rapid growth, supported by strong domestic demand and a benign external environment. On the eve of the global financial crisis, EMDEs accounted for almost one-third of global output and global exports, up from about one-quarter in 2001. EMDEs became a key source of global saving during the pre-crisis period. Gross saving in EMDEs rose by 10 percentage points of GDP between 2001 and 2007, while benign financing conditions encouraged strong investment growth. During this period, EMDEs accumulated sizeable current account surpluses, reduced fiscal deficits, lowered debt, and built foreign exchange reserves.

Second, the paper finds that EMDEs weathered the 2009 global recession relatively well, particularly those with strong fundamentals that allowed the use of counter-cyclical (expansionary) policy tools and those that were less exposed to global trade and finance. EMDEs that had built central bank credibility, established low inflation, and secured sound fiscal positions had space to engage in monetary and fiscal stimulus and thus fared better during the crisis, as did those that had accumulated ample foreign reserves that could be used to stabilize exchange rates. EMDEs that were heavily reliant on more volatile financing sources (such as portfolio investment and cross-border bank lending), especially those in

> 2 See Berkmen et al. (2012); Blanchard, Faruqee, and Das (2010); and World Bank (2009a).

> 3 See Arestis and Karakitsos (2013); Blinder (2013); Imbs (2010); and Mishkin (2011).

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