Historical price hike of commodities ends with slower global growth

The new World Bank report "Global Economic Prospects 2009," analyzes the impact of financial crisis on GDP growth in the world, pointing to a marked deceleration in each region, even in developing countries to now seemed almost immune. With the subtitle "The markets at the crossroads", the publication shows that in the future will achieve a balance between supply and demand for key commodities such as oil and food, through the adoption of policies successful in the energy and agriculture.
The global recession plaguing the developing world
The section on the global economic outlook, the report predicts a lower overall GDP growth of 2.5% in 2008 to 0.9% in 2009. It is expected that the growth of developing nations, 7.9% decline from the strong level recorded in 2007 - 4.5% in 2009. The growth in rich countries is likely to be negative next year.
"We see that the world economy is in a transition from a long period of solid growth led by developing countries and another period of great uncertainty due to the financial crisis that has shaken international markets," said Hans Timmer, director of Trends Global Group's analysis of the development prospects of the World Bank. "The slowdown observed in developing countries is very significant because the restriction of credit directly affects investment, a key factor in the strong performance of the developing world over the past five years.

With tighter credit conditions and less craving for risk, it is expected that the growth of investment in developing countries fell from 13% in 2007 to 3.5% in 2009, a very significant figure if one takes into account that one third part of GDP growth can be attributed to these countries.
Hans Timmer of the Bank and other economists predict that world trade will shrink by 2.1% in 2009, the first time has been falling since 1982. All countries affected by this decline in exports, which reflects not only a sharp slowdown in overall demand, but also the limited availability of export credits.
Outlook for developing regions
In East Asia and the Pacific, GDP growth fell to about 8.5% in 2008 and is expected to fall to 6.7% in 2009. This region was hit by a massive sale of shares and marked low export volumes. According to forecasts, China's growth will slow from 9.4% in 2008 to 7.5% in 2009, although the stimulus plan for U.S. $ 586,000 million announced recently that the government could again raise its growth to 8 , 5% in 2010.
GDP growth in Europe and Central Asia are expected to decline to 5.3% in 2008 to 2.7% in 2009. This recession is due to lower investment, to which are added difficult financing conditions and lower demand in the export market. Russian growth is likely to be 6% by 2008, a decrease to 8.1% in 2007, following the banking crisis and low oil prices.
In Latin America and the Caribbean, GDP growth, which is expected to reach 4.4% in 2008 - is at risk and puts pressure on private sector investment. As you lower the prices of the major exporters, like Argentina, can record current account deficits. Others, like Brazil and Mexico, experienced a decline in its exports to the United States and Europe, and hit by the recession. It is estimated that the regional outlook will deteriorate in 2009, a fall of GDP to 2.1% due to a decrease in capital expenditures.
The Middle East and North Africa seems to have resisted in 2008, with a steady growth of 5.8% but the total figure conceals fluctuations in trade balances in current account and external financing conditions. It is projected that regional growth is only 3.9% in 2009 because the oil exporters will face the challenge of reducing earnings next year.
The increase in South Asia declined to 6.3% in 2008 compared to 8.4% in 2007 and is projected to decrease to 5.4% in 2009. The high prices of food and fuel, tightening credit conditions and declining foreign demand led to a worsening of external accounts and put brake on investment growth. The recession is most evident in India and Pakistan, where industrial production fell sharply.
In sub-Saharan Africa, growth rose to 5.4% in 2008, but is expected to decline to 4.6% in 2009. However, it could drop the contribution of net exports to GDP increased by Africa, while many countries have become more vulnerable to the crisis in terms of trade. The increase in food prices and fuel also increased the poverty gap, which increased the risk of social unrest.
The projections of the full report can be found on the website for the World Economic Outlook, which is available in English, Chinese, French and Spanish.
The commodities at the crossroads
The recent sudden and low oil prices and food mark the end of what has been the rise in commodity prices over the last century historical. As in other similar situations, this boom was driven by strong global economic growth and has come to an end with the sudden economic slowdown worldwide, precipitated by the financial crisis.
The duration of this exceptional buoyancy in five years, the number of commodities involved and the high prices reached levels that reflect the strength of growth in developing countries during this period.
Between early 2003 and mid 2008, oil prices rose by 320% in dollar terms, and prices of internationally traded food products 138%. No doubt you have finished this long hike, but the social and human consequences of the historic high prices still remain. Prices in general have fallen, giving much of its previous gains due to a slower growth of GDP, increased supply and revised expectations.
However, there is still much higher than at the beginning of the hike is expected to remain higher than in the nineties during the next 20 years due to the demand for food grains for biofuel production. It is likely that oil prices averaging $ 75 per barrel next year and it is expected that, for the following five years, real prices of food around the world continue a 25% higher than in the 1990s .
Outlook for supply and long-term demand for oil, metals and food
Despite the drop in commodity prices, concerns persist about supply and demand in the long term, as regards the impact that these high prices could have on the poor. The authors of the report discusses the possibilities that the world may be heading towards a prolonged period of scarcity, in which, as some fear, the supply of oil, metals and food grains is shrinking and prices are ever higher . They also examine how this affects the poor and how best to help.
"We believe speculation about the imminent shortage of food and energy are not well founded, and that the world will run out of primary key if the right policies are adopted," said Andrew Burns, lead author of the report. "The way that things really take place in the next 20 years depends on governments to take measures to reduce dependency on oil, promote alternative energy sources, combating climate change and boost farm productivity. "
Why there is no shortage of commodities quickly? The world economy is entering a phase of slower growth due to low population growth, aging of the population in high-income countries and slower growth in some large developing nations rapidly growing, while the days are andalusia income levels. Moreover, technological progress has reduced food and energy resources used per unit of GDP. Expected to stabilize the demand for metals from China, which explains a global increase in the intensity of use of the metal, and then decline in line with the rest of the world.
It is likely that demand for new cars and trucks in developing countries generate 75% of the additional energy needs between now and 2030, which is why it is critical to improved efficiency in transport, which could include hybrid cars Electric and hydrogen.
Given the slow population growth, it is unlikely that the world runs out of food. However, it is possible that the offer does not follow the same pace as demand in some nations with rapid population growth, especially in Africa. These countries should encourage domestic agricultural productivity, improving rural road networks and increasing research and development of the agricultural sector.
"Climate change could reduce agricultural productivity in nothing more and nothing less than 25% by 2080 if nothing is done about it", said Burns. "There is no reason for complacency and there are many possibilities for political action, including support for improved technologies."
Food prices will probably be more sensitive to oil prices as a result of increased production of biofuels derived from food crops. However, new technologies such as non-grain biofuels and other alternative energy sources, could lead to grain-based biofuels uneconomic.
Exports and economic growth
Another important conclusion of the report is that exports can support growth if policies are formulated. In particular, it indicates that although the resource-dependent countries tend to grow slowly, nations with abundant resources tend to be high income.
The publication concluded that there is no dependence on commodities which causes slow growth and poverty, but rather the slow growth-the lack of development of other sectors of an economy linked to commodities-which explains such dependence.
Resource-rich countries have handled their recent revenue windfall in a more prudent in the past, and are now better prepared for the current fall in prices. But nations that newly discovered resources and those that depend heavily on bank loans could be at risk.
Impact of the price of commodities in poverty
Finally, the report says that high commodity prices-especially food, have had a profound impact on poverty, plunging 130 to 155 million people below the poverty line from December 2005 to December 2,007. The worst impact was felt in urban areas. While government policies reacted quickly to offset the harmful effects of high prices, many of these efforts were misdirected and were costly.
"Looking ahead, it is necessary to put more welfare programs so that the next time that they be extended during a crisis, much more aid reaches the neediest," said Burns. "It is also necessary to intervene globally to discourage the prohibitions on the export of foodgrains, strengthen agencies like the World Food Program, and improve information and coordination of existing national grain reserves."


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