Slowing growth, dimming prospects

In 2015, Kaushik Basu, the World Bank Group’s Chief Economist at the time, asked us to assess long-term growth prospects of emerging market and developing economies (EMDEs). His request inspired us to prepare the study “Slowdown in Emerging Markets: Rough Patch or Prolonged Weakness?”1 The question in the title was a deliberate choice since the study documented a synchronous slowdown in these economies during 2010-15 but concluded that cyclical factors partly played a role and that policies could reverse the decline in growth. We now have a definitive answer to the question we posed in the title: These economies are in the midst of a prolonged period of weakness.

This book argues that the weakness in growth will likely extend for the remainder of the 2020s. It could be even more pronounced if financial crises erupt in major economies and, especially, if they trigger a global recession. The experience of the past two decades has shown that financial crises and recessions cause lasting damage to growth; this would compound the weaknesses in the main drivers of growth that are already embedded in current trends. In addition, the necessary policy interventions could be delayed, as often happened during the past decade, such that global growth over the 2020s could disappoint once again.