There are more economic troubles for the world, the World Bank warns. The global bank noted, yesterday, from its Washington DC headquarters that the shrinking value of the currencies of most developing economies is driving up food and fuel prices in ways that could deepen the food and energy crises that many of them already face.
According to the World Bank’s latest Commodity Markets Outlook report, currency depreciations, almost 60 per cent of oil-importing emerging-market and developing economies saw an increase in domestic-currency oil prices recently, while nearly 90 per cent of the economies also saw a larger increase in wheat prices in local currency terms compared to the rise in U.S. dollars.
It stressed that elevated prices of energy commodities that serve as inputs to agricultural production have been driving up food prices.
In his reaction to the findings, the World Bank’s Vice President for Equitable Growth, Finance, and Institutions, Pablo Saavedra, said, “Although many commodity prices have retreated from their peaks, they are still high compared to their average level over the past five years. A further spike in world food prices could prolong the challenges of food insecurity across developing countries. An array of policies is needed to foster supply, facilitate distribution, and support real incomes.”
Since the outbreak of the war in Ukraine, energy prices have been quite volatile but are now expected to decline. After surging by about 60 per cent in 2022, energy prices are projected to decline 11 per cent in 2023.
Despite this moderation, energy prices next year will still be 75 per cent above their average over the past five years. The price of Brent crude oil is expected to average $92 a barrel in 2023 -well above the five-year average of $60 a barrel.
Both natural gas and coal prices are projected to ease in 2023 from record highs in 2022. However, by 2024, Australian coal and U.S. natural-gas prices are still expected to be double their average over the past five years, while European natural gas prices could be nearly four times higher.
Coal production is projected to significantly increase as several major exporters boost output, putting climate-change goals at risk.
Also, the Director of the World Bank’s Prospects Group and EFI Chief Economist, which produces the Outlook report, Ayhan Kose stated, “The combination of elevated commodity prices and persistent currency depreciations translates into higher inflation in many countries. Policymakers in emerging markets and developing economies have limited room to manage the most pronounced global inflation cycle in decades. They need to carefully calibrate monetary and fiscal policies, clearly communicate their plans, and get ready for a period of even higher volatility in global financial and commodity markets.”
The report projected that agricultural prices are expected to decline five per cent next year while wheat prices in the third quarter of 2022 fell nearly 20 per cent but remain 24 per cent higher than a year ago.
On his part, Senior Economist in the World Bank’s Prospects Group, John Baffes said, “The forecast of a decline in agricultural prices is subject to an array of risks.”
“First, export disruptions by Ukraine or Russia could again interrupt global grain supplies. Second, additional increases in energy prices could exert upward pressure on grain and edible oil prices. Third, adverse weather patterns can reduce yields; 2023 is likely to be the third La Niña year in a row, potentially reducing yields of key crops in South America and Southern Africa.”
The report also highlighted that the concerns about a possible global recession next year have already contributed to a sharp decline in copper and aluminium prices, saying prices will likely remain volatile as the energy transition unfolds and demand shifts from fossil fuels to renewables, which will benefit some metal producers.