World Bank’s commodity markets outlook

The World Bank has released its latest commodity markets outlook, forecasting a significant drop in global commodity prices to their lowest levels of the 2020s. The report indicates that faltering economic growth, coupled with ample oil supply, is contributing to this downward trend. Phil Kenworthy, an Economist at the World Bank, explained that they are expecting a 12% decline in commodity prices in 2025, followed by an additional 5% drop in 2026. These levels have not been seen since 2020. Kenworthy highlighted that the current global economic slowdown has led to weakened commodity demand. The slowdown in industrial activity and reduced travel demand due to energy consumption have further exacerbated the situation. He pointed out that the decline in commodity prices is mainly being driven by energy prices, with a 17% decrease expected this year, reaching levels last seen in 2020. One of the key factors impacting oil prices is the combination of softening demand and increased supply by OPEC. The organization has decided to hold a significant amount of spare oil capacity off the market, despite the desire to boost export revenues. This surplus, along with a potentially weaker economic growth environment, is contributing to the downward pressure on prices. Kenworthy also discussed the uncertain environment in commodity markets, citing escalating trade tensions, extreme weather events, and global conflicts as contributing factors to heightened price volatility. Developing economies, particularly commodity exporters, face challenges in managing the fluctuations in commodity prices, which can affect export revenues and government budgets. Gold prices, on the other hand, are expected to set records in 2025, currently trading at $3,310. The elevated prices are driven by economic uncertainty, policy ambiguity, and financial market volatility, prompting investors to seek safe-haven assets like gold. Central banks are also increasing their gold reserves as a buffer against potential shocks. In contrast, industrial metals are projected to experience a decline of about 10% in 2025, reflecting reduced industrial activity amid high uncertainty. However, the long-term support from energy transition spending in metals like copper and aluminum is expected to provide some stability amidst the current market volatility. Kenworthy emphasized the importance of disciplined fiscal management for developing economies heavily reliant on commodity exports. With two-thirds of developing economies and 90% of African countries being commodity exporters, effective fiscal institutions are crucial for smoothing out the boom and bust cycles inherent in commodity markets. Overall, the World Bank's outlook suggests that the 2020s have been marked by exceptional commodity price volatility, with short cycles and significant price booms. The future trajectory of commodity markets remains uncertain, with structural factors potentially fueling further volatility in the coming years.