Global commodity prices set to fall at fastest pace since pandemic, World Bank says

The sharp drop is expected to bring little relief to the nearly 350 million people who face food insecurity, report finds

A tractor ploughs a field in Kyiv. Fertiliser prices are expected to fall by 37 per cent this year, according to the World Bank. AFP

Global commodity prices are set to decline at their fastest pace since the onset of Covid-19, clouding the growth prospects of developing economies that rely on exports, the World Bank has said.

While commodity prices are expected to fall by 21 per cent this year, energy prices are on track to drop by 26 per cent, it said.

However, the sharp drop in prices is expected to bring “little relief” to the nearly 350 million people who face food insecurity, the World Bank said in its Commodity Markets Outlook report on Thursday.

Despite a projected 8 per cent decrease in food prices in 2023, they will still remain at their second-highest level since 1975, the report said.

Global annual food price inflation reached 20 per cent as of February this year — its highest level in the last two decades.

“The surge in food and energy prices after Russia’s invasion of Ukraine has largely passed due to slowing economic growth, a moderate winter and reallocations in the commodity trade,” said Indermit Gill, the World Bank’s chief economist and senior vice president for development economics.

“But this is of little comfort to consumers in many countries. In real terms, food prices will remain at one of the highest levels of the past five decades.

“Governments should avoid trade restrictions and protect their poorest citizens using targeted income-support programmes rather than price controls.”

The multilateral lender also expects to Brent, the benchmark for two thirds of the world oil, to average $84 a barrel this year, down 16 per cent from 2022.

Brent surged to about $140 a barrel following the start of the Ukraine war last year. It is currently trading at $77.75 a barrel as investor focus shifts to the short-term crude demand outlook.

Meanwhile, European and US natural gas prices are expected to halve this year, with coal prices set to record a 42 per cent plunge, World Bank said.

Fertiliser prices are also projected to fall by 37 per cent in 2023, which would mark the largest annual drop since 1974.

“The decline in commodity prices over the past year has helped reduce global headline inflation,” said Ayhan Kose, the World Bank’s deputy chief economist and director of its Prospects Group.

“However, central bankers need to remain vigilant as a wide range of factors, including weaker-than-expected oil supply, a more commodity-intensive recovery in China, an intensification of geopolitical tensions, or unfavourable weather conditions, could push prices higher and reignite inflationary pressures.”

Despite the expected declines, major commodity prices will stay “well above” the 2015-2019 averages, the report said.

Metal prices, which increased slightly at the beginning of 2023, are predicted to drop by 8 per cent during the remainder of this year amid weak global demand and improved supplies.

“In the longer term, however, the energy transition could significantly lift the demand for some metals, notably lithium, copper and nickel,” said Valerie Mercer-Blackman, lead economist at the Prospects Group.