Indermit Gill, the World Bank Group’s chief economist and senior vice president for development economics, said higher commodity prices have been a boon for many developing economies, two-thirds of which are commodity exporters.
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The latest Commodity Markets Outlook from the World Bank paints a worrying picture for the global economy, predicting that declining growth, abundant oil supply, and surging trade barriers will likely push global commodity prices to their lowest levels of the 2020s.
As crisis looms for developing economies reliant on commodity exports, World Bank experts on Tuesday warned of an emerging economic landscape fraught with challenges.
Forecasts indicate that global commodity prices are set to decrease by 12% in 2025, with an additional 5% drop expected in 2026, bringing prices down to levels unseen since 2020.
While nominal prices may still surpass pre-pandemic figures, an inflation-adjusted evaluation reveals a stark reality: prices are likely to sink below the average levels maintained from 2015 through 2019, signalling the end of a commodity boom that initially followed the COVID-19 pandemic and subsequently spiked due to the geopolitical ramifications of the Russia-Ukraine war.
Indermit Gill, the World Bank Group’s chief economist and senior vice president for development economics, said higher commodity prices have been a boon for many developing economies, two-thirds of which are commodity exporters.
“But we’re now seeing the highest price volatility in more than 50 years. The combination of high price volatility and low prices spells trouble,” Gill said.
“Developing economies will need to take three steps to protect themselves: first, restore fiscal discipline; second, create a more business-friendly environment to attract private capital; third, liberalize trade wherever the opportunity exists.”
Indeed, since 2023, falling global commodity prices have stabilised overall inflation rates worldwide, mitigating some of the price shocks initiated by high energy costs.
Energy prices, which surged substantially in 2022, are expected to decrease by 17% this year, ensuring that inflation growth finds some relief. Brent crude oil prices are projected to fall to an average of just $64 per barrel in 2025, a significant decline from the previous year.
However, this plunge in commodity prices may not herald positive change across the board. The United Nations projects that acute food insecurity will escalate, affecting 170 million people across 22 of the most vulnerable economies, despite food commodity prices expected to drop by 7% in 2025.
While a reduction in food prices could assist humanitarian efforts in the short term, it won't address the fundamental causes of hunger, which are predominantly rooted in ongoing conflicts.
The report further indicates that the average price of gold is anticipated to reach a record high this year, remaining substantially elevated as investors seek safe havens amidst prevailing geopolitical uncertainties.
In stark contrast, industrial metal prices are projected to decline, excessively burdened by weakening demand and mounting trade tensions, particularly fuelled by stagnant activity in China's property sector.
Cycles of boom and bust within commodity markets have intensified in the 2020s, presenting severe risks for fiscal discipline and sustained economic growth. The World Bank notes a dramatic reduction in the average duration of these cycles, which had historically lasted around four years since 1970.
Tackling the whipsaw effect of fluctuating commodity prices will require developing economies to build fiscal space, bolster institutional frameworks, and enhance investment climates, fostering resilience amidst looming uncertainties.
“Commodity prices have whipsawed throughout the 2020s—plummeting with arrival of the COVID-19 pandemic, then surging to record highs after Russia’s invasion of Ukraine, and then sinking again,” said Ayhan Kose, the World Bank Group’s deputy chief economist and director of the Prospects Group.
“In an era of geopolitical tensions, surging demand for critical minerals, and more frequent natural disasters, that could become the new normal. Successfully navigating through repeated commodity prices swings will require developing economies to build fiscal space, strengthen their institutions, and improve investment climates to facilitate job creation.”
BUSINESS REPORT