Global commodity prices are expected to dip this year at the fastest clip since the onset of the COVID-19 pandemic, clouding the growth prospects of almost two-thirds of developing economies that depend on commodity exports, the World Bank has said in its latest Commodity Markets Outlook report.
However, the drop in prices was expected to bring little relief to the nearly 350 million people across the world who face food insecurity.
Although food prices are expected to dip by eight per cent in 2023, they would be at the second-highest level since 1975, the report stated.
As of February this year, annual food price inflation was at 20 per cent globally, the highest level over the past two decades.
The multilateral institution noted that in real terms, food prices would remain at one of the highest levels of the past five decades, urging governments to avoid trade restrictions and protect their poorest citizens using targeted income-support programmes rather than price controls.
According to the World Bank Chief Economist and Senior Vice President for Development Economics, Indermit Gill,
“The surge in food and energy prices after Russia’s invasion of Ukraine has largely passed due to slowing economic growth, a moderate winter, and reallocations in the commodity trade.
“But this is of little comfort to consumers in many countries.
“In real terms, food prices will remain at one of the highest levels of the past five decades. Governments should avoid trade restrictions and protect their poorest citizens using targeted income-support programmes rather than price controls.”
The report stated: “Overall, commodity prices are expected to fall by 21 per cent in 2023 relative to last year. Energy prices are projected to decline by 26 per cent this year.
“The price of Brent crude oil in U.S. dollars is expected to average $84 a barrel this year—down 16 per cent from the 2022 average.
“European and U.S. natural-gas prices are forecast to halve between 2022 and 2023, while coal prices are expected to decrease 42 per cent in 2023.
“Fertiliser prices are also projected to fall by 37 per cent in 2023, which would mark the largest annual drop since 1974. However, fertiliser prices are still near their recent high last seen during the 2008-09 food crisis.”
But the bank urged central bankers to remain vigilant as a wide range of factors, including weaker-than-expected oil supply, a more commodity-intensive recovery in China, an intensification of geo-political tensions, or unfavorable weather conditions, could push prices higher and reignite inflationary pressures.
Commenting on the report, the World Bank’s Deputy Chief Economist and Director of Prospects Group, Ayhan Kose said: “The decline in commodity prices over the past year has helped reduce global headline inflation.
“However, central bankers need to remain vigilant as a wide range of factors, including weaker-than-expected oil supply, a more commodity-intensive recovery in China, an intensification of geopolitical tensions, or unfavorable weather conditions, could push prices higher and reignite inflationary pressures.”
The Commodity Markets Outlook report observed that despite the large declines expected this year, prices of all major commodity groups will remain well above their 2015-2019 average levels.
It noted that European natural gas prices would hover at almost three times the average in 2015-19 while energy and coal prices will also remain above the pre-pandemic average.
On her part, Lead Economist in the World Bank’s Prospects Group, Valerie Mercer-Blackman said: “Metal prices, which increased slightly early in the year, are expected to fall by 8% relative to last year, primarily because of weak global demand and improved supplies.
“In the longer term, however, the energy transition could significantly lift the demand for some metals, notably lithium, copper, and nickel.”
A Special Focus section of the report evaluated the performance of a wide range of approaches used to forecast prices of seven industrial commodities (oil and six industrial metals).
A key finding of the study is that futures prices, which are widely used for price forecasts, often lead to large forecast errors.
Econometric models based on multiple independent variables tend to outperform other approaches as well as futures prices. The analysis suggests that augmenting model-based forecasting approaches—by incorporating the dynamics of commodity prices over time and controlling for other economic factors—enhances forecast accuracy.
Ndubuisi Francis in Abuja
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