Global Economic Prospects: Emerging and Developing Economies in the 21st Century

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00:10 Looking back to 2000,

00:12 it is clear that the first years of this century

00:15 presented big opportunities for emerging market and developing economies,

00:18 or EMDEs.

00:20 A broad policy consensus on the benefits of integration

00:23 fueled rapid growth in cross-border trade and financial flows.

00:27 Many countries improved their macroeconomic policy frameworks,

00:30 and there was strong momentum to implement structural reforms.

00:34 With the winds of international integration and

00:36 improving domestic policy conditions at their backs,

00:39 EMDEs made major progress.

00:41 These economies grew at an average of nearly 6% per year

00:44 from 2000 to 2009.

00:47 Deeper ties with the rest of the world,

00:49 including through trade,

00:51 helped lift hundreds of millions of people out of poverty.

00:55 The target of the first Millennium Development Goal

00:58 to halve the global extreme poverty rate between 1990 and 2015

01:03 was achieved five years ahead of schedule

01:05 in 2010.

01:06 Today,

01:07 EMDEs account for about 45% of global GDP,

01:11 up from 25% in 2000.

01:15 Within a generation

01:16 they have transformed the global economic landscape.

01:20 However,

01:21 this golden era of progress for EMDEs began

01:24 to peter out after the global financial crisis.

01:27 Although these economies have continued to integrate with

01:30 advanced economies through trade and financial channels,

01:33 the pace of integration has slowed.

01:36 The rapid expansion of global value chains,

01:39 which was instrumental in promoting trade growth in the 1990s and 2000s,

01:43 has leveled off since the 2010s.

01:46 As a share of GDP,

01:47 foreign direct investment inflows into EMDEs in recent

01:50 years have been well below the levels we saw

01:53 in the 2000s.

01:54 Trade and investment restrictions have increased sharply.

01:58 In other ways as well,

01:59 the landscape for EMDEs looks very different than at the turn of the 21st century.

02:04 Climate-related disasters have become more frequent and costly.

02:08 Debt burdens have climbed continually since the 2010s.

02:11 In 2024,

02:13 government debt in EMDEs

02:15 averaged 70% of GDP

02:18 compared to less than 40% in 2010.

02:20 Institutional reform progress has stalled.

02:23 Economic growth in EMDEs has undergone a series of downward shifts

02:27 from almost 6% in the 2000s

02:30 to about 5% in the 2010s

02:32 and 3.5% this decade,

02:35 the 2020s.

02:36 This pace of growth in EMDEs is still faster than in advanced economies,

02:41 but it is not sufficient to make solid gains on closing the per capita income gap.

02:46 In the first years of the 2020s,

02:48 per capita income growth in EMDEs,

02:50 excluding China and India,

02:52 was actually lower than in advanced economies.

02:55 Looking ahead,

02:56 structural drivers suggest that growth in EMDEs

02:59 will continue to slow in this decade.

03:02 This is not an easy situation for policymakers to face,

03:05 but even with tough conditions,

03:07 EMDEs,

03:08 large and small,

03:09 have agency.

03:11 The Global Economic Prospects report offers five

03:13 areas where EMDEs can be proactive.

03:16 First,

03:17 they should pursue strategic trade and investment partnerships,

03:21 including with other EMDEs,

03:23 to help boost trade and resilience.

03:25 Here we are suggesting not just more agreements

03:28 but deeper agreements that reduce behind the border barriers.

03:32 Second,

03:33 domestic policies to reduce the costs of trade and enhance efficiency,

03:37 including by lowering transport costs,

03:39 can help offset external headwinds.

03:42 Despite falling over time,

03:44 trade costs are substantially higher in EMDs than in advanced economies.

03:48 Third,

03:49 diversification in the type of trade,

03:52 particularly via a focus on services

03:54 and leveraging digital technology,

03:56 could benefit

03:57 some emerging markets.

03:59 Fourth,

04:00 and this applies to all countries,

04:01 whether they pursue a free and open approach or more isolationist policies,

04:06 it is important to acknowledge and protect the

04:07 people vulnerable to adverse effects of trade-related policies.

04:12 Fifth,

04:13 the playing field

04:14 should be level.

04:15 That means EMDEs should work to support global trade governance,

04:19 making sure that rules and institutions are effective

04:22 and enforced.

04:23 To summarize,

04:25 policymakers and EMDEs should seize the moment.

04:28 They need to take advantage of good opportunities

04:31 where they can find them.

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Looking back to 2000, it is clear that the first years of this century presented big opportunities for emerging market and developing economies, or EMDEs. A broad policy consensus on the benefits of integration fueled rapid growth in cross-border trade and financial flows. Many countries improved their macroeconomic policy frameworks, and there was strong momentum to implement structural reforms. With the winds of international integration and improving domestic policy conditions at their backs, EMDEs made major progress. These economies grew at an average of nearly 6% per year from 2000 to 2009. Deeper ties with the rest of the world, including through trade, helped lift hundreds of millions of people out of poverty. The target of the first Millennium Development Goal to halve the global extreme poverty rate between 1990 and 2015 was achieved five years ahead of schedule in 2010. Today, EMDEs account for about 45% of global GDP, up from 25% in 2000. Within a generation they have transformed the global economic landscape. However, this golden era of progress for EMDEs began to peter out after the global financial crisis. Although these economies have continued to integrate with advanced economies through trade and financial channels, the pace of integration has slowed. The rapid expansion of global value chains, which was instrumental in promoting trade growth in the 1990s and 2000s, has leveled off since the 2010s. As a share of GDP, foreign direct investment inflows into EMDEs in recent years have been well below the levels we saw in the 2000s. Trade and investment restrictions have increased sharply. In other ways as well, the landscape for EMDEs looks very different than at the turn of the 21st century. Climate-related disasters have become more frequent and costly. Debt burdens have climbed continually since the 2010s. In 2024, government debt in EMDEs averaged 70% of GDP compared to less than 40% in 2010. Institutional reform progress has stalled. Economic growth in EMDEs has undergone a series of downward shifts from almost 6% in the 2000s to about 5% in the 2010s and 3.5% this decade, the 2020s. This pace of growth in EMDEs is still faster than in advanced economies, but it is not sufficient to make solid gains on closing the per capita income gap. In the first years of the 2020s, per capita income growth in EMDEs, excluding China and India, was actually lower than in advanced economies. Looking ahead, structural drivers suggest that growth in EMDEs will continue to slow in this decade. This is not an easy situation for policymakers to face, but even with tough conditions, EMDEs, large and small, have agency. The Global Economic Prospects report offers five areas where EMDEs can be proactive. First, they should pursue strategic trade and investment partnerships, including with other EMDEs, to help boost trade and resilience. Here we are suggesting not just more agreements but deeper agreements that reduce behind the border barriers. Second, domestic policies to reduce the costs of trade and enhance efficiency, including by lowering transport costs, can help offset external headwinds. Despite falling over time, trade costs are substantially higher in EMDs than in advanced economies. Third, diversification in the type of trade, particularly via a focus on services and leveraging digital technology, could benefit some emerging markets. Fourth, and this applies to all countries, whether they pursue a free and open approach or more isolationist policies, it is important to acknowledge and protect the people vulnerable to adverse effects of trade-related policies. Fifth, the playing field should be level. That means EMDEs should work to support global trade governance, making sure that rules and institutions are effective and enforced. To summarize, policymakers and EMDEs should seize the moment. They need to take advantage of good opportunities where they can find them.

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