While the International Monetary Fund acknowledged that commodity prices are “notoriously hard to predict”, it said that “there is general agreement among analysts that they will likely remain low, given ample supplies and weak prospects for global economic growth“.
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The grim outlook for commodity prices is contained in an analysis in a chapter released yesterday for inclusion in the IMF’s World Economic Outlook, October 2015.
The Fund said many exporting countries have been better prepared for the current slump, saving more of their earnings in preparation for an industry slowdown, and letting their currencies adjust to the market, resulting in less violent swings.
For several years now, economists have been talking about the need to diversify Australia’s growth sources.
“These developments make emerging market economies more vulnerable to a rise in interest rates, dollar appreciation, and an increase in global risk aversion”, said Gaston Gelos, division chief of the IMF’s global financial stability division.
“Similarly, a decline in the role of firm-and country-level factors in recent years would be consistent with the view that markets may have been underestimating risks”.
Overseas, Japanese stocks plummeted on Tuesday, with the Nikkei index diving 4.05 percent to a more than eight-month closing low, as a drop in commodity prices and a global equities rout was extended further.
The International Monetary Fund has repeatedly urged the Fed to delay lifting interest rates until next year, partly to give emerging economies more time to prepare for the rising rate environment.
A few domestic spending to support growth could help, but that impact on broader economic growth will be limited.
However, HSBC senior economist Paul Bloxham argued on Monday that the depreciation of the Australian dollar was helping services exports compensate for the mining infrastructure downturn, while greater volumes of coal and iron ore were partly offsetting heavy price falls.
“Foreign exchange reserves have continued to increase, benefitting from windfalls from lower import prices”.
In Latin America’s six largest economies, for example, the average growth rate has fallen from 6% in 2010 to around 1% this year.
It said weaker commodity demand from China, in particular, was expected to have a negative effect on South Africa’s exports.
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“A significant deceleration in growth rates is unavoidable”.
