The shift to more expensive business patterns has begun; transition to cleaner energy could be delayed
WASHINGTON, April 26, 2022—The war in Ukraine has caused a great impact on commodity markets, altering global patterns of trade, production and consumption in a way 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 rise in energy prices in the past two years has been the largest since the 1973 oil crisis. Price increases in food staples, 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.
“Overall, this equates to the largest commodity shock we have experienced since the 1970s. As was the case then, the impact is being compounded by increased restrictions on trade in food, fuel and fertilizer.” saying Indermit Gill, Vice President for Equitable Growth, Finance and Institutions at the World Bank. “These developments have started to raise the specter of stagflation. Policymakers must seize every opportunity to increase economic growth in the country and avoid actions that harm the world economy.
Energy prices are expected to rise by more than 50% in 2022 before falling in 2023 and 2024. Non-energy prices, including those for agriculture and metals, are expected to rise by almost 20% in 2022 and are also will moderate in the following years. However, commodity prices are expected to remain well above the average of the last five years. In the event of a protracted war or additional sanctions on Russia, prices could be even higher and more volatile than currently projected.
Due to war-related disruptions in production and trade, the price of Brent crude oil is expected to average $100 per barrel in 2022, its highest level since 2013, and an increase of more than 40 percent in compared to 2021. Prices are expected to moderate to $92 in 2023, well above the five-year average of $60 per barrel. (European) natural gas prices are expected to be double in 2022 than in 2021, while coal prices are expected to be 80 percent higher, with both prices at record highs.
“Commodity markets are experiencing one of the biggest supply shocks in decades due to the war in Ukraine.” saying Ayhan Kose, Director of the World Bank Outlook Group, that produces the panorama report. “The resulting increase in food and energy prices is taking a significant human and economic toll, and will likely halt progress in reducing poverty. Higher commodity prices are exacerbating already elevated inflationary pressures around the world.”
Wheat prices are forecast to rise more than 40 percent, reaching an all-time high in nominal terms this year. That will put pressure on developing economies that depend on wheat imports, especially from Russia and Ukraine. Metal prices are forecast to rise 16% in 2022 before tapering off in 2023, but will remain elevated.
“Commodity markets are under tremendous pressure, with some commodity prices reaching all-time highs in nominal terms,” saying John Baffes, Senior Economist, World Bank Outlook Group. “This will have lasting side effects. The sharp increase in the prices of inputs, such as energy and fertilizers, could lead to a reduction in 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 lawmakers to act quickly to minimize harm to their citizens and the global economy. It requires specific safety net programs, such as cash transfers, school feeding programs, and public works programs, instead of subsidies for food and fuel. A key priority should be investing in energy efficiency, including weatherizing buildings. It also calls on countries to accelerate the development of non-carbon energy sources, such as renewable energies.
Download the report