Key Points:
- Global economic growth is expected to slow, reflecting lingering pandemic effects and other challenges.
- Commodity prices in 2024-2025 will be about 40% higher than the 2015-2019 averages.
- OPEC+ production cuts have reduced global oil supply, maintaining high prices.
- Despite the global economic slowdown, China’s robust commodity demand persists due to its ongoing industrial investments.
Global economic growth is charting a course towards a slower pace, expected to be nearly half a percentage point behind the pre-pandemic average. Before COVID-19 turned the world upside down, the global economcruisedng more robust. However, the landscape has shifted, and we now face a period of recalibration and adjustment. This deceleration reflects the lingering effects of the pandemic, coupled with other multifaceted challenges that the global economy must navigate.
Commodity Prices: The Highs and Lows
Commodity prices are projected to remain significantly elevated compared to their pre-pandemic levels. The overall average for 2024-2025 is predicted to hover around 40% above the 2015-2019 levels. When we delve into specifics, the energy and food sectors present a more nuanced picture. While expected to moderate, energy prices will still be about 40% higher than the 2015-2019 averages. Similarly, analysts forecast food prices to be approximately 30% higher. Analysts anticipate base metal prices to rise slightly this year and the next, maintaining an average of roughly 40% above the 2015-2019 benchmark.
The Driving Forces: Oil, China, Climate, and Geopolitics
Oil Supply Constraints: The OPEC+ Factor
A significant force influencing the current economic trends is the strategic manoeuvring by OPEC+ oil exporters. As of late June, these exporters have pulled more than 6 million barrels of oil daily from the global market, amounting to nearly 7% of global demand. This reduction has sent Brent oil prices fluctuating between the mid $70s to the low $90s per barrel, with an average forecast of $79 for 2024. These production cuts have substantially constrained the oil supply, keeping prices buoyant and affecting global economic dynamics.
China’s Resilient Demand
China’s commodity appetite remains robust despite a slowdown in economic output. While the annual growth rate of 6.7% in 2015-2019 has tapered to about 4.5% for 2024-2025, China’s demand remains a critical factor in global commodity markets. This resilience is partly due to the country’s ongoing industrial investments and infrastructure projects, even as the property sector experiences a downturn. China’s strategic focus on enhancing industrial capacity in preferred industries continues to support its commodity consumption.
Climate Change: A Double-Edged Sword
The impact of climate change on commodity markets is increasingly pronounced. On the one hand, clean energy investments are soaring globally, driving demand for metals like copper and aluminium, which are essential for renewable energy infrastructure. However, long lead times required to bring new mines online constrain the supply side, keeping prices elevated. On the agricultural front, climate-related weather events have driven prices of staples like cocoa and coffee to record levels, underscoring the vulnerability of agricultural supply chains to environmental disruptions.
Geopolitical Tensions: A Volatile Landscape
Geopolitical tensions continue to cast a long shadow over global commodity markets. Historical events such as Russia’s invasion of Ukraine in 2022, OPEC+ supply cuts in mid-2023, and escalating Middle East tensions in April 2024 have kept commodity prices high and volatile. These shocks have destabilized energy and grain markets and driven gold prices to historic highs as investors seek safe havens. The future outlook remains fraught with risks of supply shocks, global inflation, and financial market volatility, fuelled by the highest number of active armed conflicts in decades.
Opportunities and Strategies for Commodity-Exporting Countries
Amid these challenges, there lies a silver lining for commodity-exporting countries. Many expect faster growth in the coming years compared to 2015-2019. To capitalize on this opportunity, these nations should strengthen their institutions and use revenue windfalls to address fiscal imbalances. Building robust foreign exchange reserves and bolstering central bank credibility can also provide a buffer against economic volatility. These measures can help ensure that the benefits of higher commodity prices are leveraged for sustainable economic development.
A New Era of Economic Realities
As we navigate the 2020s, several key factors are reshaping the global economic landscape. Weather disasters are becoming more frequent, metal demand is gaining momentum due to the energy transition, and geopolitical tensions show no signs of abating. This confluence of factors suggests that a prolonged period of higher commodity prices amid subdued economic growth could become the new norm. While challenges abound, they also present opportunities for strategic adjustments and resilient growth in a continually evolving world.
The global economic outlook is a tapestry of challenges and opportunities. With slower growth, elevated commodity prices, and a host of driving forces, navigating this landscape requires a keen understanding of the interconnected dynamics and a proactive approach to leveraging opportunities for sustainable development.
