Prices slow down the global economy – Kommersant

After rising by 45% last year, commodity prices could fall by 21% this year, primarily due to weakening demand amid a slowdown in global economic growth, World Bank experts predict. This correction has already taken place in the cost of energy products: according to the results of the first quarter, prices for energy raw materials decreased by 20%, including oil prices by 8%. The weakening in the economy was also recorded by the statistics on US GDP for the first quarter published yesterday – experts do not exclude a “mild recession” in the world’s largest economy amid high rates, while the data indicate a slowdown in its growth.

Global commodity prices fell 14% in the first quarter to 32% lower by the end of March from their peak in June 2022 (commodities up 45% last year), offsetting much of the price increase that has occurred since the beginning of the military operation of the Russian Federation in Ukraine, according to a World Bank review on the state of commodity markets. By the end of the year, the decline in prices may accelerate to 21% – the decline will be associated primarily with a slowdown in the global economy, as well as with the redirection of supplies of raw materials, limited by sanctions. However, higher activity in the Chinese industrial sector, as well as geopolitical risks and adverse weather conditions, may support energy and metal prices.

The cost of energy goods this year may fall by 26%, while most of the decline has already occurred in the first quarter (minus 20%), the WB reports. Gas prices in Europe and the US could halve (but in the EU they will still be three times the 2015-2019 average), and coal prices are expected to fall by 42%. For oil, the bank’s forecast for this year is $84 per barrel, which is 16% less than the average in 2022. In the first quarter of 2023, the average oil price was $81 per barrel, minus 8% qoq. Note that the price of a barrel of Brent at the beginning of the week fell to the level of the end of March ($78 per barrel), despite the announced additional reduction in production by OPEC+ countries by 1.1 million barrels per day starting from May.

After rising to record levels in 2022, food prices may also fall by 8% this year, but only wheat became cheaper in the first quarter (minus 5%), and annual inflation in the food sector averaged 20% in February – this the highest level in the last 20 years. Part of the pressure on prices will ease following the cheaper fertilizer prices – their cost may fall by 37% after rising by 55% last year (as a result, the index will fall to a level comparable to 2021). Metallurgy products, according to the WB forecast, may also fall in price by 8% after a short-term growth at the beginning of the year on expectations of an increase in activity due to the “discovery” of China, which did not fully come true.

Yesterday’s data on the dynamics of US GDP in the first quarter also turned out to be worse than expected: the indicator increased by 1.1% year on year (yoy by 1.6%) against the 2% expected by analysts (in the fourth quarter of last year, the growth was 2, 6%). Consumption increased by 3.7%, capex decreased by 0.4%, but the biggest negative effect on the bottom line was the reduction in inventories. Capital Economics expects higher Fed and bank rates and worsening lending conditions to lead to a more pronounced decline in investment and a “mild recession”, but notes that so far, macro indicators point to a slowdown in growth rather than its collapse.

“The statistics did not cause any negative short-term reaction in the US stock market or in oil quotes immediately after the release, but showed that the Personal Consumption Expenditure (PCE) index, which excludes energy and food prices, rose 4.9% for quarter against 4.4% in the fourth quarter of last year, said Igor Gerasimov, an analyst for international stock markets at BCS Mir Investments. He believes that the Fed now has every reason to raise rates at the May 3 meeting, and the likelihood of rate cuts before the end of 2023 seems less and less realistic. The Fed itself, according to the minutes of the last meeting, expects a “mild recession” in the US before the end of the year and growth for the whole year by 0.4%, which is significantly lower than economists and banks estimate.

Tatyana Edovina