Global Economy: Commodity Prices under Pressure
After the World Bank released a rather gloomy forecast for global economic growth on Tuesday (13/01) while crude oil prices continue to fall, global commodity prices have become under pressure on Wednesday’s trading day. In its latest Global Economic Prospects report, the World Bank said that the global economy will grow 3 percent year-on-year (y/y) in 2015, down from its previous estimate of 3.4 percent (y/y). Its growth forecast for economic growth in 2016 was also revised down from 3.5 percent (y/y) to 3.3 percent.
Meanwhile, crude oil prices continued to fall on Wednesday amid concerns about global growth as well as expectation of higher US oil supplies. Brent crude has lost almost 60 percent of its value since June 2014. Analysts have trouble to indicate a price floor but if markets are rational then prices cannot fall much further. One of the reasons why we have been seeing a sharp drop in oil prices in recent months is because oil had been bought as a hedge against the weak US dollar. However, as the US dollar has been strengthening amid US monetary tightening, oil entered the oversold territory.
Benchmark copper futures, a barometer of industrial demand, plunged 6.3 percent to its weakest level since 2009, while coal contracts lost about 25 percent in value over the past eight weeks.
US-based bank Morgan Stanley said that the recent sharp fall in commodity prices, particularly the low oil prices, are causing deflationary pressures in the ASEAN region thus weakening economic growth. Morgan Stanley wrote that f or every ten percent fall in oil prices the consumer price index (CPI) is reduced by 24 basis points from first-round impact.
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