Slower economic growth could weigh on commodity prices


Supply chain challenges and rising inflation are dampening global economic growth, with last year’s pace of expansion expected to slow this year and next, which could lead to lower demand of raw materials. If demand for commodities slows, prices could reflect moderating economies. That could happen before the end of 2023, Reuters market analyst John Kemp argue. According to Kemp, historical patterns of economic cycles suggest that we could see a slowdown in economic expansion next year.

This, combined with interest rate hikes as early as this year, could weigh on global manufacturing and growth and potentially reduce demand for some commodities.

Forecasts point to slower economic growth in 2022 and 2023 compared to 2021, when economies rebounded from the 2020 recession to 5.9% growth.

“The global economy enters 2022 in a weaker position than expected,” the International Monetary Fund (IMF) said. noted in its update on the outlook for the world economy this week. As a result, the IMF revised its growth estimate for 2022 down to 4.4% in 2022, half a percentage point lower than in the October World Economic Outlook (WEO). The downward revision largely reflects expected markdowns in the two largest economies, the United States and China, the IMF said.

“Rising energy prices and supply disruptions have led to higher and more widespread inflation than expected, particularly in the United States and many emerging markets and developing economies. The ongoing downturn in China’s real estate sector and slower-than-expected recovery in private consumption also have limited growth prospects,” the fund said.

Next year, global growth is expected to slow to 3.8%. Although this is 0.2 percentage points higher than in the previous forecast, the upgrade largely reflects a mechanical recovery after the current headwinds to growth dissipate in the second half of 2022. Unsurprisingly, the IMF forecast are conditional on most countries overcoming the pandemic by the end of 2022, and no new variants requiring mobility restrictions or large-scale lockdowns.

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“High inflation is expected to persist longer than expected into the October WEO, with continued supply chain disruptions and high energy prices continuing into 2022,” the IMF noted.

“Assuming that medium-term inflation expectations remain well anchored and the pandemic loosens its grip, the rise in inflation should subside as supply chain disruptions abate, the monetary policy tightens and demand rebalances from goods-intensive consumption towards services,” the fund added.

Rising interest rates, slower manufacturing growth and slower economic growth could ease upward pressure on commodity prices.

The World Bank has also warned this month of decelerating global growth in 2022 and 2023, “as pent-up demand dissipates and fiscal and monetary support is unwound across the globe.”

“Global macroeconomic developments and commodity supply factors will likely lead to continued boom and bust cycles in commodity markets,” the World Bank said in its Global Economic Outlook report.

Despite the slowdown in global growth expected in the coming months, the prices of energy commodities and key metals of the energy transition could continue to increase in a context of tighter than expected markets and growing demand in the field. green energy, respectively.

Goldman Sachs, for example, said earlier this month that commodities were globally ready for a supercycle which could last a decade. Currently, we are seeing record turmoil in the energy, metals and agriculture markets, said Jeff Currie, global head of commodities research at Goldman Sachs. Bloomberg Television at the beginning of this month.

Goldman Sachs, which is “extremely bullish” on the entire commodities complex, is also very bullish on oil. Goldman expects oil prices could reach $100 this year and move to $105 a barrel in 2023 due to the “surprisingly large deficit” in the oil market due to Omicron’s much milder and potentially shorter impact on oil demand.

Tighter market balances, combined with decrease in unused production capacity, have made a growing number of investment banks more bullish on oil. Major Wall Street banks, including Goldman Sachs, Bank of America, JP Morgan and Morgan Stanley, expect prices to reach $100 per barrel from this year.

By Tsvetana Paraskova for Oilprice.com

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