labor markets. The balance sheets of households and financial sectors were severely damaged, resulting in a sharp contraction of investment, especially construction. Some countries in the euro area also struggled to finance their public debt and experienced severe sovereign debt crises in 2011-13, including Cyprus and Greece. Compared to the previous episodes, growth rates of consumption and investment were much weaker in advanced economies. Reflecting anemic income growth in these economies, unemployment declined only slowly during the recovery, especially in the euro area.

In contrast, EMDEs, as a group, enjoyed their strongest recovery following the 2009 global recession. Despite an unfavorable external environment, both industrial production and trade rebounded strongly, supported by a sharp increase in credit growth (Table 7). EMDEs weathered the global recession relatively well thanks to the large, prompt, and globally coordinated policy support, as discussed below. The strong performance of EMDEs during the early years of the recovery also reflects previous structural improvements such as better-regulated financial systems and stronger macroeconomic policy frameworks that allowed them to pursue more credible and effective countercyclical policies (Kose and Prasad 2010).

While it was a relatively robust recovery for EMDEs generally, its strength differed among the regions, with growth stronger in EAP, SAR, and LAC than in ECA and MNA. For example, the ECA region suffered a financial shock qualitatively similar to that in many advanced economies, its growth was slower than the other regions in the first year of the recovery.<sup>28</sup> Among the four global recoveries examined, the most recent was the first in which LICs were able to deliver positive per capita GDP growth, partly because of a sharp increase in their exports.

Policy responses during recessions and recoveries. In response to the prospect of large output and employment losses in the wake of the financial turbulence of 2008, a number of advanced economies and EMDEs employed wide-ranging expansionary fiscal policy measures during 2008–09 (Kose and Ohnsorge 2019). These coordinated measures were instrumental in supporting global demand at the height of the global financial crisis and in limiting the decline in activity. However, as public debt and financing requirements rose significantly, market pressures and—perhaps more important—political constraints led advanced economies to withdraw fiscal support in 2010.<sup>29</sup> The change in fiscal policy stance led to an unprecedented outcome, with quite different paths for government expenditures in advanced economies from past recoveries, when policy was expansionary for longer, with continued increases in real primary government

> 28 The incidence of sudden stops in capital inflows tipping countries into financial distress was about half of that prior to 2008, and centered in economies where pre-crisis credit booms were funded by large capital inflows and where banks had narrow deposit bases, such as some economies in ECA (Feyen et al. 2014). Data taken from Forbes and Warnock (2012) indicate that more than 80 percent of countries in the sample experienced sudden stops in 2009, while the share was around 46 percent, on average, in 1982 and 1991. In addition, many sudden stops episodes were observed during the global downturns of 1998 and 2001. Eichengreen and Gupta (2016) also document the high incidence of sudden stops during the 2009 global recession.

> 29 In advanced economies, government expenditures started increasing gradually since 2015 as public investment picked up in major economies. A number of countries have implemented tax reforms to stimulate activity over the past decade (IMF 2019; OECD 2019).

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