(April 10, 2012) — The future for commodity exporting nations is bleak due to an ongoing weak economic climate, according to a recently released report by the International Monetary Fund (IMF).
“Looking ahead, given the weak global activity and heightened downside risks to the near-term outlook, commodity exporters may be in for a downturn,” the IMF says in its World Economic Outlook projections.
The IMF asserts that commodity prices are more likely to decline during the latter half of 2012 and into 2013. The fund’s report continues: “If downside risks to global economic growth materialize, there could be even greater challenges facing commodity exporters, most of which are emerging and developing economies. Conversely, if geopolitical risks to the supply of oil materialize, oil prices could rise temporarily, but the ensuing slowdown in global growth could lead to a decline in the prices of other commodities.”
Fueling the upward trajectory of commodities prices, the IMF also said a shortage of crude-oil supplies would send prices higher, “but the ensuing slowdown in global growth could lead to a decline in the prices of other commodities.”
According to the IMF, given the difficulty of projecting commodity market prospects in real time, “the best approach is a cautious one that builds buffers to address cyclical volatilities and gradually incorporates new information to allow a smooth adjustment to potentially permanently higher commodity prices.”
The IMF report stands in stark contrast to a report released last year by Jeremy Grantham, the co-founder of the US investment firm GMO Capital Management, who asserted that the age of cheap commodities prices is over. He noted in April 2011 that it’s ‘time to wake up’ as the days of plentiful resources and falling commodity prices are a thing of the past. “The world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value,” Grantham wrote in GMO’s latest quarterly newsletter. “We all need to adjust our behavior to this new environment. It would help if we did it quickly.”
“Statistically, most commodities are now so far away from their former downward trend that it makes it very probable that the old trend has changed – that there is in fact a paradigm shift – perhaps the most important economic event since the Industrial Revolution,” he wrote.