Global demand growth for goods will decline over the next 30 years, a new book ‘Commodity Markets: Evolution, Challenges and Policies’ released by World Bank says.
The book, edited by John Baffes and Peter Nagle, cites slow population growth and maturing of developing economies among reasons for the drop in demand for goods.
The book says world markets are changing “in lasting ways” by the impacts of Covid-19 pandemic, Ukraine War, and climate change. Market transformation has deep implications for developing economies, authors say.
Indeed, the Russia-Ukraine War has disrupted outflow of agricultural produce from Ukraine. United Nations Secretary-General Antonio Guterres wants to restore the supply chain. Earlier this week, he expressed his determination “to help bring back to world markets the agriculture produce of Ukraine, and food and fertiliser from Russia and Belarus despite the war”. The US backs UN chief’s push to restore food grain supply.
World Bank Group President David Malpass says, “Reshaping of commodity market continues amid overlapping crises over the past two years and the ongoing transition to lower carbon intensity.
“These changes will have major implications for growth and poverty reduction in developing economies, two-thirds of which are commodity exporters. A sound goal is for the shifts in commodity markets to encourage good outcomes for both development and environmental sustainability.”
The book reinforces growth forecasts of experts. Most experts project world growth to decline from an estimated 6.1 per cent in 2021 to 3.6 per cent in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than projected in January. Beyond 2023, global growth will decline to around 3.3 per cent over the medium term.
The book tells how commodity markets evolved over the last 100 years and the directions will take over the next 30. The authors believe the transition to cleaner energy is likely to be challenging. Demand for metals, necessary to build infrastructure for renewable energy and to produce electric cars, is likely to surge in the future. This would spike price of metals which would bring profits for exporting countries.
The book has encouraging forecasts for crude oil producers. Although renewable energy is fast becoming the lowest-cost source of energy in many countries, fossil fuels will probably retain some of their appeal, especially in countries with ample domestic reserves. In the short-run, with inadequate investment in low-carbon technologies - just one-third of the required level - energy demand could continue to outstrip supply, keeping prices at elevated levels.
The book suggests three ways policymakers could manage commodity-market upheavals.
Fiscal, monetary, and regulatory policies; second, moderate boom-bust cycles; and third, diversify economy.
First, book authors suggest governments to write fiscal policies that use the phase of high prices to save funds for crisis. Exchange-rate regimes should work effectively with monetary policy set-ups. Regulators should put in measures to prevent excessive financial risks - especially for capital inflows and foreign-currency debt.
Second, governments resort to subsidies or trade protections to reduce the effects of commodity-price movements on consumers. Commodity-exporting countries often try to mitigate market volatility by agreeing to regulate supplies. History shows that such efforts usually are costly and counterproductive. Adopting market-based risk plans to limit exposure to price movements would be a better choice.
Third, fossil-fuel exporting countries should continue diversify their economies. Countries that depend on agro exports would benefit from reforms that propel other drivers of their economy.
[Sudeep Sonawane, an India-based journalist, has worked in five countries in the Middle East and Asia. Email: [sudeep.sonawane@gmail.com]
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