The shift to more expensive business schemes has begun; the transition to cleaner energy could be delayed
WASHINGTON, April 26, 2022— The war in Ukraine has caused a major shock to commodity markets, altering global patterns of trade, production and consumption in ways that will keep prices at historically high levels until the end of 2024, according to the latest World Bank report. Commodity Market Outlook report.
The increase in energy prices over the past two years is the largest since the 1973 oil crisis. Price increases for food products – of which Russia and Ukraine are major producers – and fertilizers, which depend on natural gas as a production input, have been the largest since 2008.
“Globally, this represents the biggest commodity shock we have seen since the 1970s. As was the case then, the shock is compounded by increased restrictions on trade in food, fuel and fertilizer”, mentioned Indermit Gill, World Bank Vice President for Equitable Growth, Finance and Institutions. “These developments have begun to raise the specter of stagflation. Policy makers should seize every opportunity to increase economic growth in their country and avoid actions that will harm the global economy.
Energy prices are expected to increase by more than 50% in 2022 before falling in 2023 and 2024. Prices for non-energy products, including agriculture and metals, are expected to increase by almost 20% in 2022 and stabilize. will also moderate in subsequent years. Nonetheless, commodity prices are expected to remain well above the most recent five-year average. In the event of a prolonged war or additional sanctions against Russia, prices could be even higher and more volatile than currently expected.
Due to war-related trade and production disruptions, the price of Brent crude oil is expected to average $100 a barrel in 2022, its highest level since 2013 and an increase of more than 40% from 2021. Prices are expected to moderate to $92. in 2023, well above the five-year average of $60 a barrel. (European) natural gas prices are expected to be twice as high in 2022 as they were in 2021, while coal prices are expected to be 80% higher, with both prices reaching historic highs.
“Commodity markets are experiencing one of the biggest supply shocks in decades due to the war in Ukraine,” mentioned Ayhan Kose, director of the World Bank‘s Perspectives Group, who produces the Outlook report. “The resulting rise in food and energy prices is taking a heavy human and economic toll, and is likely to stall progress in poverty reduction. Rising commodity prices are exacerbating already high inflationary pressures around the world. »
Wheat prices are expected to increase by more than 40%, reaching a record level in nominal terms this year. This will put pressure on developing economies that depend on wheat imports, especially from Russia and Ukraine. Metal prices are expected to rise 16% in 2022 before falling in 2023, but will remain at elevated levels.
“Commodity markets are under enormous pressure, with some commodity prices reaching historic highs in nominal terms,” mentioned John Baffes, Senior Economist in the World Bank‘s Prospects Group. “It will have lasting ripple effects. The sharp rise in the prices of inputs, such as energy and fertilizers, could lead to reduced food production, especially in developing economies. Lower input use will weigh on food production and quality, affecting food availability, rural incomes and the livelihoods of the poor.
The report urges policymakers to act quickly to minimize harm to their citizens and to the global economy. It calls for targeted safety net programs such as cash transfers, school feeding programs and public works programs, rather than food and fuel subsidies. A key priority should be to invest in energy efficiency, including the weatherization of buildings. It also calls on countries to accelerate the development of carbon-free energy sources such as renewable energy.