in recent decades. Long-term growth prospects are weakening, as fundamental drivers lose momentum. In the mid-2000s, potential growth in EMDEs was 5.9 percent a year. However, it slowed to 4.7 percent a year in 2013-18 and, on current trends, is expected to decelerate further over the next decade. This slowdown reflected a sharp deterioration in capital accumulation and productivity growth amid pronounced investment weakness, and demographic headwinds. Weakening growth prospects do not bode well for poverty reduction efforts in EMDEs, with evidence that the pace of poverty reduction has already started to slow. To improve prospects for potential growth, EMDE policymakers need to undertake ambitious and credible reforms that boost human and physical capital accumulation, ensure appropriate factor allocation, and raise productivity.

Third, near-term risks to the growth outlook for EMDEs are tilted to the downside. At the global level, EMDEs face risks related to trade tensions between the United States and other major economies, especially China; broader threats to the international trade system; the risk of a disorderly exit process of the United Kingdom from the EU; and the possibility of financial market disruptions. At the regional level, some EMDEs face risks related to security, geopolitical tensions, and severe weather events.

Fourth, the vulnerabilities of EMDEs to adverse events have risen since the 2009 global recession. EMDEs that are most vulnerable to spikes in borrowing cost are those that are highly indebted, especially those with elevated foreign-currency-denominated debt, and those that rely on potentially volatile portfolio and bank flows to finance large current account deficits. Today’s average EMDE also has higher government and private debt, wider fiscal deficits, and only slightly smaller current account deficits than the average EMDE before past financial crises. This may be partly mitigated by greater exchange rate flexibility and more robust monetary, prudential, and fiscal policy frameworks, compared to previous crises, as well as financial sector reforms and the expansion of country-specific, regional, and multilateral financial safety nets since the global recession.

# 2. Prospects for growth

# 2.1 Decade of disappointing growth

Since 2009, January and June consensus forecasts for global growth in the same year have been downgraded by an average of 0.1 percentage point at each forecast (Figure 1). Close to 60 percent of same-year growth forecasts have been downgrades.<sup>2</sup> Downgrades affected both advanced economies and EMDE; however, in EMDEs, growth forecast were revised down more frequently and by a greater margin. Since 2009, EMDE growth has been revised down by an average of 0.2 percentage point for the current year forecast, relative to the preceding projection. Over 70 percent of same-year forecasts for EMDEs have been downgraded.<sup>3</sup>

> 2 Forecasts published in the World Bank’s Global Economic Prospects and the IMF’s World Economic Outlook showed more frequent downgrades to global growth.

> 3 Forecasts for EMDEs by the IMF, Consensus Forecasts, and the World Bank have seen a majority of forecasts downgraded in successive rounds, with the average revision since 2009 of similar magnitude.