Title page 1

Contents 6

ACKNOWLEDGMENTS 12

FOREWORD 13

EXECUTIVE SUMMARY 15

ABBREVIATIONS 17

CHAPTER 1. GLOBAL OUTLOOK 19

Summary 20

Global context 25

Global trade 26

Global inflation 28

Global financial developments 29

Major economies: Recent developments and outlook 31

Advanced economies 31

China 32

Emerging market and developing economies 33

Recent developments 33

EMDE outlook 34

Per capita income growth 41

Global outlook and risks 47

Summary of global outlook 47

Risks to the outlook 47

Policy challenges 53

Key global challenges 54

EMDE monetary and financial policy challenges 56

EMDE fiscal policy challenges 57

EMDE structural policy challenges 59

References 63

CHAPTER 2. REGIONAL OUTLOOKS 68

EAST ASIA and PACIFIC 69

Recent developments 69

Outlook 70

Risks 72

EUROPE and CENTRAL ASIA 76

Recent developments 76

Outlook 77

Risks 79

LATIN AMERICA and THE CARIBBEAN 83

Recent developments 83

Outlook 84

Risks 86

MIDDLE EAST and NORTH AFRICA 90

Recent developments 90

Outlook 92

Risks 93

SOUTH ASIA 98

Recent developments 98

Outlook 99

Risks 101

SUB-SAHARAN AFRICA 105

Recent developments 105

Outlook 106

Risks 108

References 112

CHAPTER 3. FROM TAILWINDS TO HEADWINDS: Emerging and Developing Economies in the Twenty-First Century 114

Introduction 115

EMDEs' integration into the global economy 119

Trade linkages 119

Commodity market linkages 120

Financial linkages 121

Synchronization of business cycles in EMDEs with those in the rest of the world 126

Evolution of synchronization 126

Drivers of synchronization 127

Business cycle spillovers from major economies 130

Spillovers from the EM3 and AE3 131

Spillovers from China and the United States 131

Spillovers over time and across country groups 132

Challenges confronting EMDEs 134

Weakening growth prospects 134

Difficult external environment 137

Narrowing fiscal space 139

Underdeveloped financial markets 139

Failure to reform amid elevated policy uncertainty 140

Adaptation to sectoral and technological change 140

Climate change and natural disasters 140

Policy priorities in EMDEs 141

Improving growth prospects by boosting investment and productivity 142

Navigating a difficult external environment 145

Enhancing macroeconomic stability 148

Conclusion 151

ANNEX 3.1. Dynamic factor model methodology 152

ANNEX 3.2. SVAR methodology 154

References 157

CHAPTER 4. FALLING GRADUATION PROSPECTS: Low-Income Countries in the Twenty-First Century 166

Introduction 167

Macroeconomic features of LICs and LTMs 171

Growth and structural transformation 175

Growth accelerations in LICs 179

Features of LIC growth accelerations 179

Macroeconomic and development correlates of growth accelerations 181

Challenges to growth and graduation 192

Fragility and conflict 192

Climate change 192

Fiscal vulnerabilities 194

Geography 194

Declining productivity 194

More challenging external environment 195

Growth opportunities 195

Potential demographic dividends 195

Globalization and trade 196

Natural resource endowments 197

Policy priorities 199

Cross-cutting national policy priorities 200

Context-specific national policy priorities 202

Global policies 204

Conclusion 207

ANNEX 4.1. Identifying growth accelerations 209

ANNEX 4.2. Resource discovery event studies 209

ANNEX 4.3. Estimated impact of intense conflict on GDP per capita in LICs 210

References 212

STATISTICAL APPENDIX 221

DATA AND FORECAST CONVENTIONS 226

SELECTED TOPICS 227

Tables 11

TABLE 1.1. Real GDP 21

TABLE 1.2. Emerging market and developing economies 62

TABLE 2.1.1. East Asia and Pacific forecast summary 74

TABLE 2.1.2. East Asia and Pacific country forecasts 75

TABLE 2.2.1. Europe and Central Asia forecast summary 81

TABLE 2.2.2. Europe and Central Asia country forecasts 82

TABLE 2.3.1. Latin America and the Caribbean forecast summary 88

TABLE 2.3.2. Latin America and the Caribbean country forecasts 89

TABLE 2.4.1. Middle East and North Africa forecast summary 96

TABLE 2.4.2. Middle East and North Africa economy forecasts 97

TABLE 2.5.1. South Asia forecast summary 104

TABLE 2.5.2. South Asia country forecasts 104

TABLE 2.6.1. Sub-Saharan Africa forecast summary 110

TABLE 2.6.2. Sub-Saharan Africa country forecasts 111

Figures 9

FIGURE 1.1. Global prospects 22

FIGURE 1.2. Global prospects (continued) 24

FIGURE 1.3. Global trade 26

FIGURE 1.4. Commodity markets 28

FIGURE 1.5. Global inflation 29

FIGURE 1.6. Global financial developments 30

FIGURE 1.7. Major economies: Recent developments and outlook 32

FIGURE 1.8. Recent developments in emerging market and developing economies 34

FIGURE 1.9. Outlook in emerging market and developing economies 35

FIGURE 1.10. Per capita income growth 41

FIGURE 1.11. Global outlook 48

FIGURE 1.12. Downside risks 49

FIGURE 1.13. Upside risks 52

FIGURE 1.14. Global policy challenges 54

FIGURE 1.15. EMDE monetary and financial policy challenges 57

FIGURE 1.16. EMDE fiscal policy challenges 58

FIGURE 1.17. EMDE structural policy challenges 60

FIGURE 2.1.1. China: Recent developments 70

FIGURE 2.1.2. EAP excluding China: Recent developments 71

FIGURE 2.1.3. EAP: Outlook 72

FIGURE 2.1.4. EAP: Risks 73

FIGURE 2.2.1. ECA: Recent developments 77

FIGURE 2.2.2. ECA: Outlook 78

FIGURE 2.2.3. ECA: Risks 80

FIGURE 2.3.1. LAC: Recent developments 84

FIGURE 2.3.2. LAC: Outlook 85

FIGURE 2.3.3. LAC: Risks 87

FIGURE 2.4.1. MNA: Recent developments 91

FIGURE 2.4.2. MNA: Outlook 92

FIGURE 2.4.3. MNA: Risks 94

FIGURE 2.5.1. SAR: Recent developments 99

FIGURE 2.5.2. SAR: Outlook 100

FIGURE 2.5.3. SAR: Risks 102

FIGURE 2.6.1. SSA: Recent developments 106

FIGURE 2.6.2. SSA: Outlook 107

FIGURE 2.6.3. SSA: Risks 108

FIGURE 3.1. EMDEs' contribution to global output and growth 116

FIGURE 3.2. EMDEs in global trade 120

FIGURE 3.3. EMDEs in global commodity markets 121

FIGURE 3.4. EMDEs in global financial markets 122

FIGURE 3.5. Synchronization of business cycles 127

FIGURE 3.6. Decomposition of business cycle variance 130

FIGURE 3.7. Spillovers from the EM3 and AE3 132

FIGURE 3.8. Spillovers from China and the United States 133

FIGURE 3.9. Spillovers over time and across country groups 134

FIGURE 3.10. Growth, convergence, and poverty 135

FIGURE 3.11. Potential output growth and long-term growth expectations 136

FIGURE 3.12. Trade and investment fragmentation 137

FIGURE 3.13. Global trade integration 138

FIGURE 3.14. Debt and fiscal conditions 139

FIGURE 3.15. Institutional environment and policy uncertainty 141

FIGURE 3.16. Natural disasters and climate change 142

FIGURE 3.17. Investment accelerations in EMDEs 143

FIGURE 3.18. Trade policy 146

FIGURE 3.19. Fiscal and monetary policy frameworks 150

FIGURE 4.1. Developments in LICs and LTMs 168

FIGURE 4.2. Macroeconomic features of LICs and LTMs 171

FIGURE 4.3. Macroeconomic features of LICs and LTMs (continued) 173

FIGURE 4.4. Macroeconomic features of LICs and LTMs (continued) 174

FIGURE 4.5. Growth and structural transformation since 2000 175

FIGURE 4.6. Growth and structural transformation since 2000 (continued) 177

FIGURE 4.7. Features of growth accelerations 180

FIGURE 4.8. Correlates of growth accelerations 182

FIGURE 4.9. Governance and growth accelerations 184

FIGURE 4.10. Challenges to growth and graduation to middle-income status in LICs 193

FIGURE 4.11. Growth opportunities in LICs 196

FIGURE 4.12. The evolution of key macroeconomic variables around commodity discoveries 198

FIGURE 4.13. National policy priorities 201

FIGURE 4.14. Global policy priorities 205

Boxes 9

BOX 1.1. Regional perspectives: Outlook and risks 36

BOX 1.2. Low-income countries: Recent developments and outlook 42

BOX 3.1. Regional aspects of integration 123

BOX 3.2. Transmission channels of spillovers 128

BOX 4.1. Low-income growth accelerations: Lessons from country case studies 185

Box Tables 11

TABLE B1.2.1. Low-income country forecasts 45

Box Figures 9

FIGURE B1.1.1. Regional outlooks 37

FIGURE B1.1.2. Regional risks 38

FIGURE B1.2.1. LICs: Recent developments 43

FIGURE B1.2.2. LICs: Outlook and risks 44

FIGURE B3.1.1. Trade and financial openness 124

FIGURE B3.1.2. Within-region integration 125

FIGURE B4.1.1. Nepal's growth acceleration 186

FIGURE B4.1.2. Viet Nam's growth acceleration 187

FIGURE B4.1.3. Kenya's growth acceleration 188

FIGURE B4.1.4. Ethiopia's growth acceleration 189

FIGURE B4.1.5. Rwanda's growth acceleration 191

Annex Tables 11

TABLE A3.1.1. Sample, benchmark DFM 153

TABLE A3.1.2. Sample, alternative DFM 153

TABLE A3.2.1. Sample, benchmark SVAR model 154

TABLE A3.2.2. Sign and zero restrictions imposed to identify shocks in the SVAR models 156

TABLE 4.1. List of all LICs 211

TABLE 4.2. List of LICs that turned into middle-income countries since 2000 211

Annex Figures 10

FIGURE A3.1.1. Variance decomposition, by geographic region 154