# EMDEs in ECA and EAP.

Among EMDEs, China is by far the most important source of growth spillovers to other EMDEs (Figure 8, Huidrom, Kose, and Ohnsorge 2017).<sup>11</sup> A 1 percentage point decline in China’s growth is estimated to be associated with 0.5 percentage point lower EMDE growth after one year (Huidrom et al 2019). Since China is a major source of commodity demand, the adverse impact on commodity-exporting EMDEs is twice that on commodity importers (World Bank 2016a; Baffes et al. 2018). Growth fluctuations in some of the other seven largest EMDEs could also cause adverse spillovers to EMDEs in their regions. A synchronized growth slowdown in several major economies could severely set back EMDE growth. For example, a combined 1 percentage point slowdown in growth in the United States, euro area, and China would depress global growth by almost 1.7 percentage points after a year and EMDE growth (excluding China) by 1.4 percentage points.

# 3.5 Region-specific risks

Region-specific risks have been rising, including geopolitical risks and risks relating to armed conflicts and climate change. Geopolitical risks remain high in MNA, SSA, and ECA. The number of armed conflicts in 2015-17 was significantly higher than the average of the past two decades (Figure 8).<sup>12</sup> The economic costs of conflict can be substantial, through destruction of physical and human capital, reduced employment and investment, and capital outflows (World Bank 2005; Collier 2003; Goodhand 2001). In some cases, conflict can have global consequences. For example, oil supply disruptions in MNA can raise global oil prices, depressing global aggregate demand and worsening trade balances in oil-importing economies.

Extreme weather events have been increasing in frequency, severity, and cost (World Bank 2014). Small island economies of the Caribbean and EAP, and economies with large agricultural sectors, including in SSA and SAR, are most at risk (World Bank 2017b). In the median SSA economy, agricultural value-added accounted for 21 percent of GDP in 2017—three times larger than in non-SSA EMDEs and 11 times larger than in advanced economies. As natural disasters become more common, their effects on the level and volatility of output in agriculture-dependent economies is likely to increase.

# 4. Rising vulnerabilities

Since 2007, external, corporate sector and sovereign vulnerabilities have risen in most EMDEs, leaving them less well prepared for the next financial shock (Figure 9). Vulnerabilities can be defined as conditions that increase the probability of financial or economic crises (or stress) when adverse shocks occur. If risks materialize, their impact on an EMDE’s growth will depend on its vulnerabilities and the ability of policymakers

> 11 The past decade already featured major growth disappointments in China. For example, in 2012, China’s growth was expected to average 7.4-10.1 percent during 2011-19 (World Bank 2012). In the event, actual growth will average closer to 7.2 percent.

> 12 The number of armed conflicts averaged 51 in 2015-17, compared to 35 in 2000-14 according to the Centre for the Study of Civil War at the Peace Research Institute Oslo. Conflicts are defined as developments that involve the use of armed force between two parties, of which at least one is the government of a state, and that result in at least 25 battle-related deaths in a calendar year.