The world Gdp growth is quite stable in yoy terms but the contribution of the emerging markets is fading: growth in China is the lowest since 2009, and several high frequency indicators anticipate weakness still to come. Brazil and Russia are in deep recession triggered by different reasons but sharing low commodity prices, depreciation of the national currency and high inflation, among the other causes. The economic activity in US and EMU is improving and the first half proved to be solid. Private consumption is the main driver in both countries while in Japan the second quarter was disappointingly gloomy, heavily influenced by the very bad performance of exports. Inflation remains low worldwide with few exceptions. The volatility in financial and exchange rate markets is quite high as witnessed by the turmoil following Summer problems and devaluation in China.
Import and export volumes are expected to slow down remarkably this year, with a modest recovery in 2016. This means a revision that for 2015 amounts to about 2.4 p.p. with respect to May forecasts, whereas for 2016 the current forecast is around 1.2 p.p. lower than that of May. For imports this result stems from the combination of an unchanged forecast for the advanced economies and a huge downward revision of the emerging countries demand: within the group of advanced economies the upward revision for the Euro area trade offsets a lower growth for the other countries. Euro area is forecasted to gain market share, likely at the expenses of the emerging countries, given the mixed results for the other advanced countries. The huge decline of commodity prices, low inflation, strong dollar, mean also a decline in prices of traded goods around -3.8% in 2015. A more stable landscape for commodity and dollar exchange rate and a recovery in world economic activity will push the good prices to a positive growth in 2016.
Most risks are on the downside. The emerging countries growth is low by historical standards and is further threatened by the possible outflows of financial assets that could follow the coming liftoff in US interest rates. Moreover the possible worsening of the cyclical position of the Chinese economy poses risks for world demand for exporters and commodity prices although it is not clear the effect of low commodity prices in the balance between net exporters losses and net importers gains. A contagion from emerging economies to advanced ones in term of weakness via trade and financial channels cannot be completely ruled out. Deflation risks (the inflation for many countries is low or negative and in the pipeline there are low energy and commodity prices and output gaps) deserve a mention.
World commodity prices peaked on aggregate already in the second quarter of 2011 at all-time-high and have since declined. The price peak was achieved quickly after the sharp price drop in the crisis boosted by the exceptionally strong stimulus of public Chinese investments including commodity intensive activities in particular. The recovery of industrial countries boosted by strong stimulus to kick-start the economies affected also positively on prices. The record price has proven to mark a substantial change to lower prices in the commodity markets. The turn-around was related to the declining growth of China and recessionary developments in the EU, which dampened the growth of demand for commodities. In addition to cooling demand, the recent price decline was in many cases, especially metals and energy, also reinforced by the increasing capacity and supply like in cases of crude oil and iron ore due to new investments. The decline of non-energy commodities aggregate price started after the peak contrasting to oil prices, which begun the strong decline not until June 2014. Prices of non-energy commodities will decline this year by 19 and crude oil price by 45 per cent.
Non-energy commodity prices and crude oil prices are forecast to bottom in winter 2015-2016 after sharp declines. Price development is, however, expected to be rather flat in both cases. Non-energy commodities get some strength in many cases about decreasing supply and mildly improving demand. Iron ore is, however, an exception as low-cost producers are increasing their production strongly to win market shares. The case of crude oil is a bit similar to the iron ore as low-cost OPEC aims to increase its market share with lower prices to decrease the high-cost shale oil production. In the forecast, the oil price is expected to fluctuate around the current values of 50-55 USD/bbl, as an expected decrease in shale oil production will be compensated by a similar increase in Opec production, particularly from Iran and Iraq.Attachments: