The Strategist

World Bank: Commodities fall in price as global demand slows

04/28/2023 - 03:17

The World Bank estimates that commodities prices may decline by 21% this year after growing by 45% last year, mostly because of weaker demand caused by a recession in the global economy.

Energy commodity prices have already undergone this correction; in the first quarter, prices lost 20%, with oil prices falling by 8%. The US GDP statistics for the first quarter also showed a slowdown in the economy. Experts do not completely rule out a "soft recession" in the world's largest economy under rising interest rates, but the data to yet hint to a decrease in its growth rate.

According to the World Bank's commodity markets review, a significant portion of the price increase, which occurred since the beginning of the war in Ukraine, was offset by the first quarter's 14% decline in global commodity prices, which by the end of March were down 32% from their peak in June 2022 (last year, commodities were up 45%). 

The price decrease might reach 21% by the end of the year. This decline is mostly the result of a slowdown in the global economy as well as the diversion of raw material supplies that are hampered by sanctions. However, increased industrial activity in China as well as geopolitical threats and unfavorable weather might enhance energy and metals prices.