Policy Research Working Paper 9148
Emerging and Developing Economies
Ten Years After the Global Recession
M. Ayhan Kose
Franziska Ohnsorge
Prospects Group
February 2020
,Policy Research Working Paper 9148
Abstract
Although emerging market and developing economies highlights once again the critical role of policy room in
(EMDEs) weathered the global recession a decade ago rel- shielding economic activity during adverse shocks. The sub-
atively well, they now appear less well placed to cope with sequent decade of anemic growth underlines the need for
the substantial downside risks facing the global economy. sound policy frameworks, institutions, and business envi-
In many EMDEs, the room for monetary and fiscal policies ronments to promote sustained growth. With the global
to respond to shocks has eroded; underlying growth poten- growth outlook weakening and vulnerabilities rising, the
tial has slowed; and the momentum for improving policy policy priority for EMDEs is now to improve resilience to
frameworks, institutions, and business climates seems to shocks and to lift long-term growth prospects.
have slackened. The experience of the 2009 global recession
This paper is a product of the Prospects Group. It is part of a larger effort by the World Bank to provide open access to its
research and make a contribution to development policy discussions around the world. Policy Research Working Papers
are also posted on the Web at http://www.worldbank.org/prwp. The authors may be contacted at
and .
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development
issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the
names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those
of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and
its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
Produced by the Research Support Team
, Emerging and Developing Economies:
Ten Years After the Global Recession
M. Ayhan Kose and Franziska Ohnsorge*
JEL Classification: F36; F44; G01; E60.
Keywords: Economic integration; International business cycles; Financial crises; macroeconomic
policy.
* Kose (Prospects Group, World Bank; Brookings Institution; CEPR; CAMA; );
Ohnsorge (Prospects Group, World Bank; CEPR; CAMA; ). This paper is based
on the introductory chapter of the book A Decade After the Global Recession: Lessons and Challenges of
for Emerging and Developing Economies, edited by M. Ayhan Kose and Franziska Ohnsorge, published by
the World Bank. We thank Carlos Arteta, Reza Baqir, Eduardo Borensztein, Kevin Clinton, Graham
Hacche, Patrick Njoroge, Eswar Prasad, Ugo Panizza, Zia Qureshi, Liliana Rojas-Suarez, Franz Ruch,
Christopher Towe, and seminar participants during the 2019 Annual Meetings. Shihui Liu, Shijie Shi, and
Jinxin Wu provided excellent research assistance. The findings, interpretations and conclusions expressed
in this paper will be entirely those of the authors and should not be attributed to the World Bank, its
Executive Directors, or the countries they represent.
, 1. Introduction
A decade ago, the global economy was reeling under the impact of the deepest global
recession in the post-World War II period. In 2009, emerging market and developing
economies (EMDEs) weathered the global recession relatively well. However, following a
short-lived initial rebound in activity in 2010, the global economy, and especially EMDEs,
have suffered a decade of weak growth despite unprecedented monetary policy
accommodation and several rounds of fiscal stimulus in major economies (Figure 1).
There has been a concern that the global economy may again experience a downturn in
the near future. The baseline forecast for global growth in 2019 is likely to be softer than
previously projected, partly reflecting recent data showing broad-based weakness in
industrial activity and world trade. Although global growth is expected to stabilize in
2020, this assumes that global financing conditions will remain benign, encouraging a
modest recovery of EMDE capital inflows. It also assumes no further escalation in trade
tensions between major economies and stability in commodity prices. But the growth
momentum is fragile and the risks are tilted to the downside.
Are EMDEs ready to face a global downturn, if it materializes? To answer this question,
our recent book examines developments of the past decade, draws lessons for EMDEs,
and discusses policy options (Kose and Ohnsorge 2019). It is the first comprehensive
analysis on the topic with a truly EMDE focus.
The book carries three main messages.
First, perhaps for the first time, many EMDEs were able to implement large-scale
countercyclical fiscal and monetary policy during the global recession. They were in a
position to stimulate activity because they could draw on sizable policy buffers
accumulated during the pre-recession period of strong growth: government debt had fallen,
current account and fiscal deficits narrowed, and inflation had moderated. Those EMDEs
with more resilient economies and with more forceful stimulus experienced milder growth
slowdowns during the global recession.
Second, on a more cautionary note, this study warns that, were a sharp global downturn
to happen now, the average EMDE would be less prepared to address it than before the
2009 recession. EMDEs generally are more vulnerable to external shocks, in part because
of mounting debt, weakening demand for commodity exports, and slower underlying
domestic growth. Trade disputes among major economies are chipping away at an
important engine of EMDE growth. At the same time, weaker fiscal positions would make
it more difficult for EMDEs to support activity with expansionary fiscal policy.
Third, there are a few reasons for optimism. Since the 1997-98 Asian crisis and the 2001
U.S. recession—the two global downturns that preceded the 2009 global recession—policy
frameworks in EMDEs have become more resilient. For example, the number of EMDEs
with inflation-targeting monetary policy regimes and the number with fiscal rules has
risen considerably since 1997. While the effectiveness of these rules-based policy
Emerging and Developing Economies
Ten Years After the Global Recession
M. Ayhan Kose
Franziska Ohnsorge
Prospects Group
February 2020
,Policy Research Working Paper 9148
Abstract
Although emerging market and developing economies highlights once again the critical role of policy room in
(EMDEs) weathered the global recession a decade ago rel- shielding economic activity during adverse shocks. The sub-
atively well, they now appear less well placed to cope with sequent decade of anemic growth underlines the need for
the substantial downside risks facing the global economy. sound policy frameworks, institutions, and business envi-
In many EMDEs, the room for monetary and fiscal policies ronments to promote sustained growth. With the global
to respond to shocks has eroded; underlying growth poten- growth outlook weakening and vulnerabilities rising, the
tial has slowed; and the momentum for improving policy policy priority for EMDEs is now to improve resilience to
frameworks, institutions, and business climates seems to shocks and to lift long-term growth prospects.
have slackened. The experience of the 2009 global recession
This paper is a product of the Prospects Group. It is part of a larger effort by the World Bank to provide open access to its
research and make a contribution to development policy discussions around the world. Policy Research Working Papers
are also posted on the Web at http://www.worldbank.org/prwp. The authors may be contacted at
and .
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development
issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the
names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those
of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and
its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
Produced by the Research Support Team
, Emerging and Developing Economies:
Ten Years After the Global Recession
M. Ayhan Kose and Franziska Ohnsorge*
JEL Classification: F36; F44; G01; E60.
Keywords: Economic integration; International business cycles; Financial crises; macroeconomic
policy.
* Kose (Prospects Group, World Bank; Brookings Institution; CEPR; CAMA; );
Ohnsorge (Prospects Group, World Bank; CEPR; CAMA; ). This paper is based
on the introductory chapter of the book A Decade After the Global Recession: Lessons and Challenges of
for Emerging and Developing Economies, edited by M. Ayhan Kose and Franziska Ohnsorge, published by
the World Bank. We thank Carlos Arteta, Reza Baqir, Eduardo Borensztein, Kevin Clinton, Graham
Hacche, Patrick Njoroge, Eswar Prasad, Ugo Panizza, Zia Qureshi, Liliana Rojas-Suarez, Franz Ruch,
Christopher Towe, and seminar participants during the 2019 Annual Meetings. Shihui Liu, Shijie Shi, and
Jinxin Wu provided excellent research assistance. The findings, interpretations and conclusions expressed
in this paper will be entirely those of the authors and should not be attributed to the World Bank, its
Executive Directors, or the countries they represent.
, 1. Introduction
A decade ago, the global economy was reeling under the impact of the deepest global
recession in the post-World War II period. In 2009, emerging market and developing
economies (EMDEs) weathered the global recession relatively well. However, following a
short-lived initial rebound in activity in 2010, the global economy, and especially EMDEs,
have suffered a decade of weak growth despite unprecedented monetary policy
accommodation and several rounds of fiscal stimulus in major economies (Figure 1).
There has been a concern that the global economy may again experience a downturn in
the near future. The baseline forecast for global growth in 2019 is likely to be softer than
previously projected, partly reflecting recent data showing broad-based weakness in
industrial activity and world trade. Although global growth is expected to stabilize in
2020, this assumes that global financing conditions will remain benign, encouraging a
modest recovery of EMDE capital inflows. It also assumes no further escalation in trade
tensions between major economies and stability in commodity prices. But the growth
momentum is fragile and the risks are tilted to the downside.
Are EMDEs ready to face a global downturn, if it materializes? To answer this question,
our recent book examines developments of the past decade, draws lessons for EMDEs,
and discusses policy options (Kose and Ohnsorge 2019). It is the first comprehensive
analysis on the topic with a truly EMDE focus.
The book carries three main messages.
First, perhaps for the first time, many EMDEs were able to implement large-scale
countercyclical fiscal and monetary policy during the global recession. They were in a
position to stimulate activity because they could draw on sizable policy buffers
accumulated during the pre-recession period of strong growth: government debt had fallen,
current account and fiscal deficits narrowed, and inflation had moderated. Those EMDEs
with more resilient economies and with more forceful stimulus experienced milder growth
slowdowns during the global recession.
Second, on a more cautionary note, this study warns that, were a sharp global downturn
to happen now, the average EMDE would be less prepared to address it than before the
2009 recession. EMDEs generally are more vulnerable to external shocks, in part because
of mounting debt, weakening demand for commodity exports, and slower underlying
domestic growth. Trade disputes among major economies are chipping away at an
important engine of EMDE growth. At the same time, weaker fiscal positions would make
it more difficult for EMDEs to support activity with expansionary fiscal policy.
Third, there are a few reasons for optimism. Since the 1997-98 Asian crisis and the 2001
U.S. recession—the two global downturns that preceded the 2009 global recession—policy
frameworks in EMDEs have become more resilient. For example, the number of EMDEs
with inflation-targeting monetary policy regimes and the number with fiscal rules has
risen considerably since 1997. While the effectiveness of these rules-based policy
