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From The World Bank Group
Global Economic Prospects for Developing Countries 2009:
Commodity Markets at the Crossroads
Published December 9 2008

Complete report as one file    (5.4mb pdf)
Table of Contents, Foreword and Acknowledgements (62k pdf)
Overview in English  |  Spanish  |  French 
The release of this year’s Global Economic Prospects finds the world economy at a crossroads. Markets all over the world are engulfed in a global economic crisis, with stock markets sharply down and volatile, almost all currencies having depreciated substantially against the dollar, and risk premiums on a wide range of debt having increased by 600 or more basis points. Commodity markets too have turned a corner. Following several years of increase, prices have plummeted, and although well above their 1990s levels, they have given up most of the increases of the past 24 months.

Chapter 1: Prospects for the Global Economy
(see related interactive website:
 Prospects for the Global Economy)

The stresses in the financial markets of the United States that first emerged in the summer of 2007 transformed themselves into a full-blown global financial crisis in the fall of 2008: credit markets froze; stock markets crashed; and a sequence of insolvencies threatened the entire international financial system. Massive liquidity injections by central banks and a variety of stopgap measures by governments proved inadequate to contain the crisis at first...
Virtually no country, developing or highincome, has escaped the impact of the widening crisis, although those countries with stronger fundamentals going into the crisis have been less affected. The deterioration in financing conditions has been most severe in countries with large current account deficits, and in those that showed signs of overheating and unsustainably rapid credit creation before the financial crisis intensified...

Chapter 2: The Commodity Boom: Longer-Term Prospects
The enduring importance of commodities to the world economy and their volatility has been driven home with the rise, and recent decline, of prices for energy, metals, and food. Before they began to fall in the second half of 2008, the real prices of energy and metals more than doubled over the past five years, while the real price of internationally traded food commodities increased 75 percent (see chapter 1 for more detail on the most recent developments in commodity markets). This chapter reviews the main characteristics of this most recent boom in commodity markets and examines the structure and behavior of both their demand and supply, with a view to better understanding prospects over the medium to long term...


Chapter 3: Dealing with Changing Commodity Prices
As discussed in chapter 2, the rise in primary commodity prices between 2003 and mid-2008 was much larger and more sustained than those of earlier decades. Although commodity prices have fallen sharply from their recent highs, they remain well above their levels in the early 2000s and are projected to remain high relative to their levels in the 1990s for a significant period of time. The boom in commodity prices has generated dramatic transfers of income within and among countries.


Appendix: Regional Economic Prospects

Substantial headwinds buffeted the economies of East Asia and the Pacific during 2008, causing GDP growth to slow sharply, from the 10.5 percent pace of 2007 to 8.5 percent in the year...
The rapid GDP growth in Europe and Central Asia of the past 20 years, which largely reflected the enormous reform efforts undertaken by countries in the region (including those associated with accession to the European Union), eased in 2008 and is expected to give way to a sharp slowdown in 2009...
During 2008, Latin American GDP advanced 4.4 percent, still robust, albeit down from the strong 5.7 percent pace of the previous year. Buffers in the form of large levels of reserves and current account surpluses mitigated the impact of slowing exports to the United States to a degree. Latin America’s exports lost momentum, however, growing only 1.7 percent in 2008 compared with 5 percent in 2007, while the region’s current account position dropped from a surplus of 0.5 percent of GDP to a deficit of the same magnitude...
The Middle East and North Africa region has been affected dramatically by developments in global commodity markets over the last three years, notably in 2008. As a result there have been substantial up- and downshifts in terms of trade, current account positions, and external financing requirements. These shifts have occurred at the same time as the external environment for growth and for international finance deteriorated markedly...
GDP growth in South Asia slowed markedly in 2008 to 6.3 percent from 8.4 percent in 2007. The onset of the financial crisis in the United States and Europe in mid-September 2008—which led to severe financial turmoil in emerging markets, including in many South Asian countries—ushered in a downshift in activity that started to take hold in late-2008. Growth had already begun to wane in the region prior to the onset of the global crisis,...
Sub-Saharan Africa’s economy expanded 5.4 percent in 2008, the first time in more than 45 years that growth exceeded 5 percent for five years in succession—this despite substantial deterioration in the external environment during the year...



Global Economic Prospects 2009: Commodities at the Crossroads

The eruption of the worldwide financial crisis has radically recast prospects for the world economy. Global Economic Prospects 2009: Commodities at the Crossroads analyzes the implications of
the crisis for low- and middle-income countries, including an in-depth look at long-term prospects for global commodity markets and the policies of both commodity producing and consuming nations.

Developing countries face sharply higher borrowing costs and reduced access to capital. This will cut into their capacity to finance investment spending—ending a five-year stretch of developing-country growth in excess of 6 percent annually. The looming recession presents new risks, coming as it does on the heels of the recent food and fuel crisis.

Commodity markets, meanwhile, are at a crossroads. Following decades of low prices and weak investment in supply capacity, commodity prices first spiked—spurred on by five years of very fast developing-country growth—and have now plummeted in response to the financial crisis.

In the longer run, commodities are not expected to be in short supply. Prices should be higher than they were in the 1990s but much lower than in the recent past. These higher prices should provide producers with sufficient incentive to discover new supplies, improve output from existing resources,
and promote greater conservation and substitution with more abundant alternatives. At the same time, slower population growth will ease the pace at which commodity demand grows. Policies to limit carbon emissions and boost agricultural investment, along with the dissemination of efficient techniques, should also contribute to this long-term outcome.

This year’s Global Economic Prospects also looks at government responses to the recent price boom. Producing-country governments have saved more of their windfall revenues, and are therefore less likely to be forced to cut into spending now that prices have declined. The spike in food prices tipped more people into poverty, which led governments to expand social assistance programs.
These programs need to be better targeted to the needs of the very poor so that governments can respond effectively the next time there is a crisis.

Bibliographic references

Global Economic Prospects 2009
Available in: Français

Chapter 1

Chen, Shaohua, and Martin Ravallion. 2008. "The Developing World is Poorer than We Though, But No Less Successful in the Fight Against Poverty." World Bank Policy Research Working Paper 4703, August. World Bank, Washington, D.C.

Hebling, Thomas, and Marco Terrones. 2003. "Real and Financial Effects of Bursting Asset Bubbles." In IMF World Economic Outlook, April. Available at http://www.imf.org/external/pubs/ft/weo/2008/02/.

IMF (International Monetary Fund). 2008. "Financial Stress and Economic Downturns." in IMF World Economic Outlook. October. http://www.imf.org/external/pubs/ft/weo/2008/02/.

Ratha, Dilip, Sanket Mohapatra, and Zhimei Xu. 2008. "Outlook for Remittances Flows 2008-2010." Migration and Development Brief 8. World Bank, Washington, D.C.

World Bank. 2008. Global Purchasing Power Parities and Real Expenditures: 2005 International Comparison Program. Washington, D.C.: World Bank.

Regional Outlooks

Arbache, Jorge Saba, and John Page. 2007. "More Growth or Fewer Collapses? A New Look at Long Run Growth in Sub-Saharan Africa." World Bank Policy Research Working Paper 4384, November. World Bank.

Calvo, Guillermo and Ernesto Talvi. 2007. "Current Account Surplus in Latin America: Recipe against Capital Market Crises." http://www.rgemonitor.com/latam-blog/58/current_account_surplus_in_latin_america_recipe_against_capital_market_crise .

DJF (Dow Jones Factiva). 2008. http://www.factiva.com

Fajnzylber, Pablo and J. Humberto Lopez. 2008. “The Development Impact of Remittances in Latin America.” In Remittances and Development: Lessons from Latin America, eds. Pablo Fajnzylber, J. Humberto Lopez. Washington, D.C.: World Bank.

ISI (ISI Emerging Markets). 2008. http://www.securities.com

Izquierdo, Alejandro, Randall Romero, and Ernesto Talvi. 2008. “Booms and Busts in Latin America: the Role of External Factors.” Research Department Working Paper 631. Inter-American Development Bank, Washington,D.C. http://www.imf.org/external/np/seminars/eng/2007/whd/.

Österholm, Pär, and Jeromin Zettelmeyer. 2007. "The Effect of External Conditions on Growth in Latin America." Working Paper 07/176. International Monetary Fund, Washington, D.C.

World Bank. 2008a. Migration and Remittances Factbook 2008. Washington, D.C.: World Bank.

__________. 2008b. Rising Food Prices: The World Bank’s Latin America and Caribbean Region Position Paper. Washington, D.C.

__________. 2008c. "Shockwaves from the North: Latin America and the Caribeean Region Position Paper." Chief Economist Office, Latin America and the Caribbean Region, Washington, D.C.

 


Permanent URL for this page: http://go.worldbank.org/U8Q9PXMJV0

Prospects for the global economy:

 

 


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