Soaring commodity prices exacerbate vulnerabilities in emerging markets


  • Rising fuel and metal prices expose importers at a time when slow progress on COVID-19 vaccinations threatens to derail economic recovery and looming rate hikes in the United States highlight external vulnerabilities .

  • Most emerging countries in Europe, Asia and Latin America are suffering from rising fuel prices. Turkey, India and Egypt are particularly vulnerable because their external positions are weak to begin with.

  • In the longer term, the global transition to clean energy technologies will benefit net exporters of metals, also strengthening China’s place in the global economy.

High fuel and metal prices pose another risk to emerging market outlook

Rising energy and metal prices are a double-edged sword for emerging markets. While net exporters rejoice in soaring prices, net importers face a growing import bill. For many economies, rising import costs will further weaken their already weak external position. Acute energy shortages could also lead to electricity rationing and power cuts locally, derailing a fragile economic recovery. The energy crisis is hitting emerging countries at a time when slow progress in vaccination against COVID-19 exposes many countries to other negative impacts of the pandemic (see graph 1). In the context of the approaching rate hikes in the United States next year and the anticipated strength of the US dollar, there is a risk of a sharp reversal in net capital flows, adding pressure on emerging currencies and debt.

Prices should stabilize, but risks are on the upside

In our baseline scenario, we see oil prices in the $ 75- $ 80 range for the next two years. OPEC has shown little sign of easing the current supply, but if prices continue to rise significantly from here, a combination of both an OPEC response and our vision of a stronger dollar should limit the rise in the medium term. On the other hand, the decline is limited due to low investment in production in recent years. For natural gas, the combination of low supply from Russia, limited availability of LNG in the world and low production of renewables in Europe is likely to keep prices high during the peak season. winter heating, as we wrote in Research Euro Area – Looming Energy Crisis Creates Perfect Storm, October 4.

For metals, the slowdown in growth in China combined with the high costs of energy-intensive steel production have already weighed on the terms of trade for iron ore producers, particularly in Brazil and South Africa. South. High energy costs continue to contribute to the tight supply of refined metals for the time being, but ultimately the slowdown in China’s construction sector, increased attention to environmental challenges, and deleveraging imply challenges. metal prices at least moderately lower in the medium term, read more in Research Global – Power crunch supports metal prices despite falling demand, Oct. 18.

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