ISLAMABAD: The World Bank on Thursday forecast a substantial decline in global commodity prices during the current year but Pakistanis would have to brace for 21pc average annual inflation in the next fiscal year.
In its latest Commodity Markets Outlook, the World Bank expected global commodity prices to decline this year at the fastest clip since the onset of the Covid-19 pandemic, clouding the growth prospects of almost two-thirds of developing economies that depend on commodity exports.
“The drop in prices, however, is expected to bring little relief to the nearly 350 million people across the world who face food insecurity”, said the bank, adding that although food prices were expected to fall by 8pc in 2023, they would be at the second-highest level since 1975.
The report came a day after the Ministry of Finance forecast 21pc annual inflation for the next fiscal year — down from a record 28.5pc during the current fiscal year. The MOF also forecast the economic growth rate for the next fiscal year at 3.5pc against 0.8pc anticipated for the current fiscal year.
Says despite fall, food prices will remain at five-decade high
The World Bank noted that as of February this year, annual food price inflation was at 20pc globally, the highest level over the past 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”, he said.
Overall, commodity prices are expected to fall by 21pc in 2023 relative to last year. Energy prices are projected to decline by 26pc this year. The price of Brent crude oil in U.S. dollars is expected to average $84 a barrel this year—down 16pc from the 2022 average. European and US natural-gas prices are forecast to halve between 2022 and 2023, while coal prices are expected to decrease by 42pc in 2023.
Fertiliser prices are also projected to fall by 37pc in 2023, which would mark the largest annual drop since 1974. However, fertiliser prices are still near their recent high last seen during the 2008-09 food crisis. Pakistan’s major imports include oil and gas besides coal, wheat and fertilizers that together form almost half of total imports.
Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of Prospects Group said: “The decline in commodity prices over the past year has helped reduce global headline inflation. 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 large declines expected this year, prices of all major commodity groups will remain well above their 2015-2019 average levels. European natural gas prices will hover at almost three times the average in 2015-19. Energy and coal prices will also remain above the pre-pandemic average.
“Metal prices, which increased slightly early in the year, are expected to fall by 8pc relative to last year, primarily because of weak global demand and improved supplies,” said Valerie Mercer-Blackman, Lead Economist in the World Bank’s Prospects Group. “In the longer term, however, the energy transition could significantly lift the demand for some metals, notably lithium, copper, and nickel.”
A Special Focus section of the report evaluates the performance of a wide range of approaches used to forecast prices of seven industrial commodities (oil and six industrial metals). A key finding of the study is that futures prices, which are widely used for price forecasts, often lead to large forecast errors.
Published in Dawn, April 28th, 2023