You are here
Home > Business > Currency depreciations deepen global food, energy crisis: WB

Currency depreciations deepen global food, energy crisis: WB

The shrinking value of the currencies of most developing economies is driving up food and fuel prices in ways that could deepen the food and energy crises that many of them already face, the World Bank said in its latest report.

Released Thursday, the ‘Commodity Markets Outlook’ report says that the prices of most commodities have declined from their recent peaks amid concerns of an impending global recession.

From the Russian invasion of Ukraine in February this year through the end of last month, the price of Brent crude oil in U.S. dollars fell nearly six per cent.

“Yet, because of currency depreciations, almost 60 per cent of oil-importing emerging-market and developing economies saw an increase in domestic-currency oil prices during this period. Nearly 90 per cent of these economies also saw a larger increase in wheat prices in local-currency terms compared to the rise in US dollars,” reads the report.

“Although many commodity prices have retreated from their peaks, they are still high compared to their average level over the past five years,” said Pablo Saavedra, the World Bank’s Vice President for Equitable Growth, Finance, and Institutions.

“A further spike in world food prices could prolong the challenges of food insecurity across developing countries. An array of policies is needed to foster supply, facilitate distribution, and support real incomes.”

Elevated prices of energy commodities that serve as inputs to agricultural production have been driving up food prices. During the first three quarters of 2022, food-price inflation in South Asia averaged more than 20 per cent.

Food price inflation in other regions, including Latin America and the Caribbean, the Middle East and North Africa, Sub-Saharan Africa, and Eastern Europe and Central Asia, averaged between 12 and 15 per cent. East Asia and the Pacific has been the only region with low food-price inflation, partly because of broadly stable prices of rice, the region’s key staple.

Since the war in Ukraine, energy prices have been quite volatile but are now expected to decline. After surging by about 60 per cent this year, energy prices are projected to decline 11 per cent in next year. Despite this moderation, energy prices next year will still be 75 per cent above their average over the past five years, according to the report.

Besides, the price of Brent crude oil is expected to average $92 a barrel in 2023-well above the five-year average of $60 a barrel. Both natural gas and coal prices are projected to ease in 2023 from record highs in 2022, it added.

However, by 2024, Australian coal and the US natural-gas prices are still expected to be double their average over the past five years, while European natural gas prices could be nearly four times higher. Coal production is projected to significantly increase as several major exporters boost output, putting climate-change goals at risk.

Pablo Saavedra said the combination of elevated commodity prices and persistent currency depreciations translates into higher inflation in many countries.

“A further spike in world food prices could prolong the challenges of food insecurity across developing countries. An array of policies is needed to foster supply, facilitate distribution, and support real incomes.”

Besides, agricultural prices are expected to decline 5 per cent next year. Wheat prices in the third quarter of 2022 fell nearly 20 per cent but remain 24 per cent higher than a year ago.

The decline in agricultural prices in 2023 reflects a better-than-projected global wheat crop, stable supplies in the rice market, and the resumption of grain exports from Ukraine.

“The forecast of a decline in agricultural prices is subject to an array of risks,” said John Baffes, senior economist in the World Bank’s Prospects Group.

A sharper slowdown in global growth also presents a key risk, especially for crude oil and metals prices. Metal prices are projected to decline 15 per cent in 2023, largely because of weaker global growth and concerns about a slowdown in China.

The report examines the drivers of aluminum and copper prices and explores implications for emerging market and developing economies that export these commodities.

Facebook Notice for EU! You need to login to view and post FB Comments!

Similar Articles

Leave a Reply

Top