Strong possibility of commodity prices falling, warns IMF
Given the fragile global economy, there is a strong possibility of a significant fall in commodity prices over 2012-13, the International Monetary Fund has forecast in a research report released Tuesday.
"There is a strong risk of prices plateauing or even dropping, with potentially serious consequences for exporters," the IMF states in excerpts from its latest World Economic Outlook report due to be released next week.
Giving its forecasts for global economic growth, the IMF warns that in the near term, and perhaps the long term, commodity prices are likely to slump rather than maintain present levels.
The IMF projection states that "given the weak global activity and heightened downside risks to the near-term outlook, commodity exporters may be in for a downturn. If downside risks to global economic growth materialize, there could be even greater challenges facing commodity exporters, most of which are emerging and developing economies."
The report also warns that if geopolitical risks to the supply of oil materialize, oil prices could rise temporarily, but the ensuing slowdown in global growth could lead to a decline in the prices of other commodities.
"The weak global economic outlook suggests that commodity prices are unlikely to increase at the pace of the past decade, In fact, under the baseline World Economic Outlook projections, commodity prices are forecast to decline somewhat during 2012-13," states IMF projection.
According to the study, a typical downswing in energy and metal prices lasts 23 years, with a real price decline of 40 to 50 per cent from peak to trough.
This can translate into a real GDP growth reduction of 0.5 to 1 percentage point in the downswing relative to the upswing. And the difference in economic performance across commodity price swings is larger when price cycles are sharper or last longer than usual.
The report dismisses the case for sovereign wealth funds to invest revenues from commodity exports, saying the money would deliver a bigger return if it were invested in physical and social infrastructure to lift future productivity.
In its revised update in January, the IMF had its forecast of global growth in 2012 from 4 per cent to 3.3 per cent, and in 2013 from 4.5 per cent to 3.9 per cent.
The new report suggests that IMF's is unlikely to upwardly revise its estimates.
Source:Europe News.Net
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