Wednesday, December 10, 2008

Global Economic Prospects 2009: Commodities at a Crossroad

The World Bank released its latest Global Economic Prospects report for 2009. Since it deals nearly exclusively with commodities, I thought it might have some interesting nuggets to explore. Today I'll post the link to the pdf, the introduction, as well as some of its key findings - and hopefully break down some commentary in the coming days.

The release of this year’s Global Economic Prospects finds the world economy at a crossroads. Markets all over the world are engulfed in a global economic crisis, with stock markets sharply down and volatile, almost all currencies having depreciated substantially against the dollar, and risk premiums on a wide range of debt having increased by 600 or more basis points. Commodity markets too have turned a corner. Following several years of increase, prices have plummeted, and although well above their 1990s levels, they have given up most of the increases of the past 24 months.

Chapter 1 of this report examines the medium-term implications of this crisis for
developing-country growth, inflation, and world trade. Chapter 2 looks at longer-term supply and demand prospects in commodity markets. It takes into account the long-term growth prospects of developing countries and their rising share in world GDP (gross domestic product), the declining quality of new pools of resources, and the influence of technology on both demand and supply. Finally, chapter 3 reports on the poverty impacts of high commodity prices and examines
the effectiveness of policies in both producing and consuming countries in dealing with the challenges posed by periodic bouts of high commodity prices.

This report does not deal with water, fish, or timber, all commodities of critical importance to developing countries and the globe but which fall outside the scope of this report either because of their public-goods character or, in the case of timber, because of its treatment in a recent report (World Bank 2007).
Key Findings:
  1. The global financial crisis threatens short term prospects in developing countries
  2. Uncertainty continues to cloud the outlook
  3. The commodity market boom has come to an end
  4. Commodity prices are declining in response to slower GDP growth
  5. In the longer term, growth in the demand for commodities should ease
  6. Moderating demand for metals depends critically on increased efficiency in China
  7. Future energy demand depends onimproving automobile efficiency
  8. Over the next 20 years, supplies of extracted commodities are likely to remain ample
  9. Food demand will slow with lower population growth, but biofuels could expand crop demand very rapidly
  10. Strong productivity growth and unused crop land should ensure adequate food supply at the global level
  11. Commodity-producing countries are managing the revenue windfall better than they have in the past
  12. High commodity prices pose challenges for the poor, especially in consuming nations
Lots of interesting topics to cover...

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