Commodities Overview
Growth in global commodity prices accelerated to 6.2% monthon-month in May, from 1.4% in April. The result, which marked the fastest rise since February, was broad-based, with 32 out of the 34 commodities we track posting a price increase in May compared to the previous month. May’s upturn came on the back of improving global demand conditions, which seemed to rekindle the commodity price rally after it lost steam at the outset of Q2. Energy prices rebounded strongly in May, as the easing of lockdown restrictions globally amid accelerating vaccination drives boosted demand for crude oil, while supply disruptions in the U.S. pushed up prices for its derivatives. Meanwhile, base metal prices soared at the quickest pace in nearly 12 years, as fast-recovering manufacturing activity globally and a somewhat constrained supply backdrop bolstered prices for industrial metals. Moreover, precious metal prices posted the strongest increase in nine months, supported by both sturdier industrial demand and their attractiveness as a hedge against inflation. Lastly, agricultural price growth picked up steam in May. FocusEconomics panelists project global commodity prices to rise 30.8% year-on-year in Q4 2021 (previous edition: +28.5% yoy). Recovering demand conditions will likely underpin the upturn, amid the global vaccine rollout and the subsequent easing of restrictions. A sturdy rebound in energy prices should lead the overall increase, thanks to increasing oil consumption owing to recovering economic activity and resuming global travel. Moreover, base metal prices are expected to increase markedly in 2021, on the back of lingering supply disruptions and booming industrial activity amid fiscal spending sprees. In contrast, precious metal prices are forecast to stay largely stable this year, as softer safe-haven demand offsets stronger industrial appetite.

 

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OVERVIEW
Global commodity prices rose 1.4% over the previous month in April, down from March’s 3.0% increase. Although the reading marked the seventh consecutive month of rising prices, the increase was the weakest since October 2020, suggesting that the commodity price rally is losing steam. April’s overall increase came on the back of sustained growth in base metal prices and a rebound in precious metal and agricultural prices. Looking at base metals, copper and steel prices continued to increase robustly due to upbeat demand and ongoing supply concerns, while prices for nickel and lead rebounded strongly. Similarly, gold prices also grew in April—contrasting March’s fall— predominately driven by higher demand from a weaker USD and stronger inflationary pressures, particularly in the U.S. and other developed economies. Furthermore, agricultural prices received a boost from sustained demand and downbeat supply projections for wheat, corn and soybeans. 

On the other hand, energy prices fell modestly and for the first time since September 2020 in April, on the back of weaker crude oil prices. FocusEconomics panelists expect global commodity prices to rise 28.5% year-on-year in Q4 2021 (previous edition: +25.1% yoy). A strong rebound in energy prices should spearhead the upturn, chiefly thanks to improving demand conditions as the global vaccine rollout and the subsequent easing of travel restrictions bode well for oil consumption. Moreover, base metal prices are expected to increase robustly relative to 2020, as fiscal spending sprees prop up industrial demand amid supply disruptions. That said, precious metal prices are forecast to dive this year, mostly on the back of softer safe-haven demand. Lastly, agricultural prices are projected to rise notably this year compared to 2020. Further ahead, our panelists forecast a 3.5% year-on-year decrease in prices in Q4 2022 amid a flattening economic recovery.

ENERGY 

Energy prices decrease in April for the first time since September 2020 Energy prices ticked down 0.3% in April, contrasting March’s 4.3% increase and marking the worst result in seven months, predominately due to lower Brent and WTI crude oil prices. Crude oil prices averaged slightly lower than in the previous month in April, which was likely the result of OPEC+’s decision to ease its production curtailments for May–July. Moreover, despite solid progress on the global vaccine rollout, travel demand remained relatively subdued as most major economies kept some lockdown measures in place to curb the spread of Covid-19, which should have weighed on demand prospects and kept a lid on prices. That being said, prices for natural gas rebounded in April as a result of resilient demand, while prices for uranium also grew robustly in the month after falling in March. Energy prices are expected to trend markedly higher this year, largely due to a low base effect after the fallout from Covid-19 hammered the global economy and oil demand last year. The likely ongoing pickup in the vaccination drive, recovering global economic activity and rebounding travel demand should underpin price growth ahead. That said, while constrained global crude production allowed demand to catch up with supply at the beginning of this year, boosting oil prices in turn, prices are likely to stay close to their current levels through year-end as output cuts are gradually eased. New Covid-19 strains, a quicker-than-expected easing of OPEC+ production curtailments and geopolitical tensions are key risks to the outlook. FocusEconomics panelists forecast a 39.0% year-on-year increase in Q4 2021 (previous edition: +38.7 yoy). Our panelists see annual energy prices dipping 1.5% in Q4 2022.

BASE METALS 

Base metal price growth accelerates in April Prices for base metals climbed 4.2% on a monthly basis in April, following a 3.7% rise in March. April’s increase marked the 12th consecutive monthly increase in prices. Base metal price growth gained some momentum in April, as China’s industrial recovery remained relatively upbeat at the beginning of Q2, while a weaker greenback and lower U.S. bond yields likely added further upward price pressure. Notably, lead and nickel prices rebounded in April, while copper and steel prices continued to increase on the back of robust demand and concerns over supply disruptions, as inventory levels fell sharply in the second half of the month. More broadly, demand for base metals for their use in industry was likely supported by the ongoing economic recovery as the JPM global composite PMI suggested economic activity increased at the quickest pace in 11 years in April. Nevertheless, alumina and cobalt prices fell sharply in April relative to March, limiting the overall upturn in base metal prices. Base metal prices are expected to post a strong increase this year compared to 2020, against the backdrop of gradually recovering demand amid strong global fiscal stimulus. While the Chinese economy continues to grow robustly, boosting prices for industrial metals in turn, a quickening economic recovery in Japan, Europe and the U.S. should provide additional support in the remainder of the year. On the supply side, the fading effect of the pandemic will likely drive a rebuild in mining capacity, keeping a lid on prices in turn. Overall, supply chain volatility, new Covid-19 strains and uncertain U.S.-China trade relations pose risks to the outlook. FocusEconomics panelists project prices to rise 16.3% annually in Q4 2021 (previous edition: +10.4% yoy). Our panelists project prices to fall 5.5% in Q4 2022.

PRECIOUS METALS

Precious metal prices rebound robustly in April Precious metal prices were up 3.1% month-on-month in April after falling 3.8% in March, which had marked the sharpest decline since March 2020. Gold prices increased over the previous month, predominately due to a weaker USD and stronger U.S. inflationary pressures, which supported demand for holding non-interest bearing assets such as gold. Moreover, palladium and platinum prices rose notably in April as supply chain disruptions in the semiconductor market led to a stark fall in automobile inventories. This raised production estimates for H2 2021, and supported demand for palladium and platinum in turn for their use in energy efficient vehicles. Furthermore, ongoing complications at two major Russian palladium mines also pushed palladium prices further up in recent weeks. However, silver prices were flat in April relative to the previous month. The 2021 outlook for precious metal prices improved slightly in April, with FocusEconomics panelists projecting prices to fall 2.4% in Q4 2021 (previous edition: -3.7% yoy). The estimate chiefly reflects the anticipation of weaker safe-haven demand, and while expectations are that stronger inflation amid ultra-low interest rates will support demand for gold as a non-yielding asset, uncertainty around the future direction of the U.S. 10-year yield rate will likely weigh on price prospects. Moreover, silver and palladium prices should moderate as supply disruptions ease. Our panelists see precious metal prices losing further ground ahead, projecting a 4.4% decrease in annual terms in Q4 2022. 

AGRICULTURAL

Agricultural prices rebound robustly in April Agricultural prices increased 5.5% month-on-month in April after falling 0.4% in March, which had marked the first drop in prices in seven months. April’s rebound was predominately due to a strong increase in prices for corn, soybeans and wheat. That said, rice, cotton and cocoa prices fell notably in the month, capping the overall upturn. Stronger corn and wheat prices in April were likely the result of still-solid demand prospects and the continued decline in supply projections. Meanwhile, sugar and palm oil prices likely benefited from stronger economic activity more broadly for their use as biofuels. FocusEconomics panelists project agricultural prices to rise 19.6% year-on-year in Q4 2021 (previous edition: +7.7% yoy). Prices should benefit from stronger demand this year as containment measures to control the spread of the virus are eased, particularly supporting prices for coffee and cotton. Moreover, relatively downbeat global supply outlooks for corn and wheat should add some upward price pressure. That said, more stable global supply levels overall will likely limit the upturn somewhat. Our panel projects annual prices to fall 8.6% in Q4 2022.

Federal Reserve Bank of Dallas, Index of Global Real Economic Activity, retrieved from FRED, Federal Reserve Bank of St. Louis; May 11, 2021

Notes:

Units: Index, Not Seasonally Adjusted
Frequency: Monthly
This series is an updated index of global real economic activity in industrial commodity markets, as proposed in Kilian (2009), with the correction discussed in Kilian (2019). This business-cycle index is expressed in percent deviations from trend. It is derived from a panel of dollar-denominated global bulk dry cargo shipping rates and may be viewed as a proxy for the volume of shipping in global industrial commodity markets. For further discussion of the advantages of this index compared with measures of global real GDP or global industrial production see Kilian and Zhou (2018).

 

Total number of vaccination doses administered. This is counted as a single dose, and may not equal the total number of people vaccinated, depending on the specific dose regime (e.g. people receive multiple doses).

Economic Consensus Forecast Latin America

Latin America

In 2021, the regional economy should rebound from last year’s Covid-19-induced slump. However, still-tight containment measures due to the elevated number of new infections will constrain the pace of recovery. Moreover, sluggish vaccine rollouts, worsening public finances, high unemployment rates and social and political turbulence pose downside risks. 

Regional inflation jumped to 7.7% in March (February: 7.0%), the highest reading since January 2020, on mounting price pressures in heavyweights Argentina, Brazil and Mexico. Inflation should gain speed this year, fueled by economic recoveries and loose monetary policy stances in the region. However, still-large output gaps should temper upward price pressures.

Argentina

This year, the economy should recover some of 2020’s Covid19-induced losses, as both domestic and external demand revive amid the gradual removal of restrictions. However, elevated inflation, currency controls and policy uncertainty will slow the pace of recovery, while protracted debt renegotiations and pandemic-related risks cloud the outlook.

Argentina Inflation
Inflation increased to 42.6% in March from February’s 40.7%, logging the highest print since June 2020. Meanwhile, March’s month-on-month increase in consumer prices was the fastest in 18 months. Going forward, inflation should gain further speed due to the monetary financing of the fiscal deficit through a sustained expansion of the monetary base.

Brazil

The economy is expected to rebound this year on the back of reviving domestic and external demand. Risks are skewed to the downside, however, amid mounting public debt levels, strained government finances and a faltering reform agenda. Uncertainty over further virus flare-ups and the speed of vaccine deployment clouds the outlook further.

Brazil Inflation
Inflation jumped to 6.1% in March from February’s 5.2%, marking the highest print since December 2016 and climbing even further above the Central Bank’s target rate of 3.75% for end-2021. Although price pressures are expected to moderate from current levels later this year amid labor market slack and a large output gap, rising fuel and food prices pose upside risks.

Chile

The economy should rebound robustly this year, as the gradual removal of restrictions domestically and abroad amid supportive fiscal and monetary policies fuels domestic and external demand. That said, uncertainty surrounding the evolution of the pandemic, as well as the constitutional process and November’s general elections, poses a downside risk.

Chile Inflation
Inflation came in at February’s 2.9% in March. Meanwhile, core inflation rose to 2.6% from 2.4% in February. This year, inflation should hover around its current levels, fueled by recovering activity and a loose monetary policy stance but tempered by a still-sizable output gap.

Colombia

The economy is seen growing solidly this year on the back of firming domestic activity and a recovering external sector, also supported by higher oil prices relative to last year. However, soaring new Covid-19 infections in April and a still-low vaccination rate threaten tighter restrictions ahead, posing a key downside risk.

Colombia Inflation
Inflation edged down to 1.5% in March from February’s 1.6%, moving further below the lower bound of the Central Bank’s target range of 2.0–4.0%. Looking ahead, price pressures are expected to intensify as domestic activity gradually recovers, with inflation ending the year closer to the midpoint of the Central Bank’s target band.

Mexico
Activity is poised to rebound in 2021 amid stronger remittances and as improving foreign demand—particularly from the U.S.— buoys exports. However, weak fiscal support will likely weigh on domestic demand. The still-raging pandemic, a slow vaccine rollout and an uncertain business environment cloud the outlook further.

Mexico Inflation
Inflation climbed to 4.7% in March from 3.8% in February, moving above Banxico’s 2.0–4.0% target range and marking an over two-year high. Inflation is seen above-target in Q2 on higher energy prices, before dipping somewhat towards the end of the year.

Peru
The economy is projected to rebound at the fastest pace in the region this year, with higher consumer and capital spending driving domestic demand and improving foreign demand supporting exports. However, a relatively slow vaccine rollout clouds the outlook, while mounting political unrest could suppress business and consumer confidence in the first half of the year.

Peru Inflation 
Inflation inched up to 2.6% in March from 2.4% in February, moving further towards the upper bound of the Central Bank’s 1.0–3.0% target range. Inflation is forecast to fall from its current level this year as easing supply chain disruptions and a projected strengthening of the sol outweigh higher household spending and improving labor market dynamics.

FocusEconomics Consensus Forecast - LatinFocus April 2021

Key Takeaways:

In the minutes from the Federal Open Market Committee’s (FOMC) March 16-17 meeting, participants noted the potential for a stronger economic recovery given the improvement in vaccinations and in economic data. Regarding inflation, the FOMC agreed that “they would aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent” and that they expected to “maintain an accommodative stance of monetary policy until those [inflation and employment] outcomes were achieved.”

The ISM Service Index jumped 8.4 points in March to 63.7, the second-largest increase in series history and the highest reading in series history. Any reading above 50 indicates expansion. The business activity, new orders, and employment indices all increased, with both the business activity and new orders indices reaching record highs.

The Producer Price Index (PPI) for final demand of goods and services rose 4.2 percent in March from a year ago. Core PPI (excludes energy, food, and trade services) increased 3.1 percent from a year ago, the fastest pace of annual growth since September 2018.

Consumer (non-mortgage) credit outstanding jumped by $27.6 billion to $4.2 trillion in February, the largest increase since November 2017, according to the Federal Reserve Board. The increase was driven mostly by nonrevolving credit (largely student and auto loans), which rose by $19.5 billion, while revolving credit (largely credit cards) rose by around $8.1 billion.

The real goods trade deficit (an input into the calculation of net exports) widened by approximately $3.0 billion to $99.1 billion in February, according to the Census Bureau. This represented the widest deficit since the series began in 1994. Exports fell 5.3 percent, while imports fell 2.0 percent. Real exports were down 8.0 percent from the level seen a year ago.

The Job Openings and Labor Turnover Survey (JOLTS) showed that job openings increased by 268,000 in February to 7.4 million, according to the Bureau of Labor Statistics. Total hires increased by 273,000 to 5.7 million, while total separations rose by 133,000 to 5.5 million.

Factory orders and shipments fell 0.8 percent and 2.0 percent, respectively, in February, according to the Census Bureau. Nondurable goods orders decreased 0.4 percent over the month but were up 0.5 percent from a year ago. Core capital goods orders dropped 0.9 percent, while shipments fell 1.1 percent in February.

Forecast Impact:

February data continued to be affected by the severe weather seen across much of the country during that month, while March data continued to show strength. The March jump in service sector activity and the increase in February consumer revolving credit highlights the extent of recovering consumer demand, though March service sector activity was likely bolstered in part by the rollout of the $1.9 trillion March stimulus legislation. Regardless, these data support our expectation of an acceleration in consumer spending. Growing consumer demand coupled with comparative weakness abroad is affecting trade, leading to imports outweighing exports and a widening of the trade deficit. Therefore, we expect that net exports will likely drag on Q1 GDP growth. Producer prices continued to climb in March, with headline PPI recording the fastest pace of annual growth since September 2011. Despite the large PPI growth, the Fed is unlikely to change its current accommodative stance, as its stated position is to wait for data to match its expectations for both employment and a long-run inflation average of two percent. The February JOLTS survey does reflect improvement in the labor market, with job openings reaching the highest level in just over two years, though employment levels still remain considerably below the pre-COVID peak.

The National Intelligence Council has released the seventh edition of its quadrennial Global Trends report. Global Trends 2040: A More Contested World is an unclassified assessment of the forces and dynamics that the NIC anticipates are likely to shape the national security environment over the next 20 years.

Global Trends 2040 identifies four structural forces that will shape the future – demographics, the environment, economics, and technology – and assesses how they affect decisions and outcomes. It further describes five potential scenarios for the world in 2040, based on different combinations of the structural forces, emerging dynamics, and key uncertainties. It ends with a series of graphics displaying key demographic trends in nine geographic regions.

The NIC has delivered Global Trends to each incoming or returning U.S. presidential administration since 1997 as an unclassified assessment of the strategic environment, reflecting a broad range of expert opinion in the United States and abroad. The report is intended to help policymakers and citizens anticipate and prepare for a range of possible futures.

The NIC supports the Director of National Intelligence in her role as head of the Intelligence Community and is the IC’s center for long-term strategic analysis. Since its establishment in 1979, the NIC has served as a bridge between the intelligence and policy communities, a source of deep substantive expertise on intelligence issues, and a facilitator of IC collaboration and outreach.

Read The Report Here: Global Trends 2040

• The World: While momentum in early 2021 will be curtailed in some countries by tougher restrictions amid the spread of new Covid-19 variants, the global economy should rebound later in the year on supportive fiscal policy and a quickening vaccine rollout. Potential vaccine resistant strains of the virus, logistical problems in the rollout and U.S.-China tensions pose downside risks.
  
  
• Canada: The economy is set to rebound strongly this year, following 2020’s sharp downturn. Pent-up demand and heightened household savings should support private spending, while strong fiscal and monetary stimulus should stoke investment activity. However, uncertainty surrounding the vaccine rollout, new variants of the virus and the evolution of commodity prices cloud the outlook.
  
  
• Euro Area: GDP is set to rebound this year amid the gradual lifting of restrictions. Supportive fiscal and monetary policies, unleashed pent-up demand and the disbursement of recovery funds will rekindle domestic spending, while reviving foreign demand will boost exports. A slow vaccine rollout crippling the tourist season, rising public debts and banks’ bad loans cloud the outlook.
  
  
• Japan: The economy is projected to recover some lost ground this year following 2020’s sharp contraction. The external sector is set to drive the revival, with exports surging on increased foreign demand, while domestically, consumer and capital spending should improve. A resurgence in Covid-19 cases and the reimposition of related restrictions pose risks to the outlook.
  
  
• United Kingdom: While activity in Q1 will be depressed, momentum should pick up sharply from Q2 onwards, aided by a rapid vaccine rollout, supportive fiscal and monetary stances and the progressive lifting of restrictions. However, the emergence of new Covid-19 variants and disruption as the UK adapts to its new trade agreement with the EU pose downside risks.
  
  
• United States: This year, GDP should rebound as the impact of the pandemic fades and the labor market recovers. Stronger fiscal stimulus under Biden’s administration and unprecedented monetary stimulus should also support activity. That said, the uncertain evolution of the pandemic and ongoing tense relations with China pose downside risks.
  
  
• Switzerland: The economy is set to expand strongly this year as external demand recovers and domestic restrictions are gradually eased. However, the uncertain evolution of the virus, a relatively sluggish vaccine rollout and somewhat tense ties with the EU due to disagreements over the renegotiation of the trading relationship pose downside risks.

 

GLOBAL ECONOMIC OUTLOOK

WORLD
The economy is set to rebound strongly this year, following 2020’s sharp downturn. Pent-up demand and elevated household saving should support private spending, while strong fiscal and monetary stimulus should stoke investment activity. However, uncertainty surrounding the vaccine rollout, new variants of the virus and the evolution of commodity prices clouds the outlook.

FocusEconomics Consensus Forecast East & South Asia
Outlook Improves - Focus Economics

The economy expanded 6.5% in Q4, more than expected, underpinned by an export surge and robust industrial output. Moreover, private consumption likely also gained steam, as suggested by recovering retail sales. That said, momentum in December appeared more mixed: While industrial production picked up speed, retail sales growth slowed, potentially due to cold weather. Turning to 2021, GDP growth will be flattered in Q1 by a highly favorable base effect. However, underlying momentum will likely be hit somewhat by the coronavirus outbreak in North China and tighter social distancing rules. In politics, the inauguration of Joe Biden as the U.S. president should herald a rhetorically more civil relationship between the two powers, although any rollback of U.S. tariffs and restrictions on Chinese tech firms is unlikely in the near term. 

The recovery from the coronavirus-induced slump is expected to strengthen this year amid stronger domestic and external demand. That said, a possible worsening of the domestic Covid-19 outbreak, uncertainty regarding the China-U.S. relationship and elevated corporate debt levels—against the backdrop of a string of recent bond defaults— pose risks to the outlook. FocusEconomics panelists expect GDP to expand 8.4% in 2021, which is up 0.3 percentage points from last month’s estimate. In 2022, the panel foresees GDP expanding 5.3%. 

Inflation came in at 0.2% in December, contrasting November’s 0.5% drop in prices—which had marked the first annual decline since 2009. Price pressures should rise in 2021 thanks to firming energy prices and stronger domestic demand, but improved food supply—particularly of pork, as farmers rebuild their hog herds in the wake of African swine fever—will limit the increase. Our panelists forecast that inflation will average 1.7% in 2021, which is down 0.2 percentage points from last month’s estimate, and 2.2% in 2022. 

In recent weeks, the People’s Bank of China (PBOC) kept its policy settings unchanged as the economy remained on the path to recovery. Looking forward, most panelists see the Bank’s key interest rate levers unchanged in 2021, although the PBOC is likely to gradually withdraw liquidity in a bid to dampen down on systemic financial risks. Panelists project the one-year deposit rate to end 2021 at 1.53% and 2022 at 1.63%. The loan prime rate is seen ending 2021 at 3.85% and 2022 at 3.94%. 

On 22 January, the yuan traded at 6.48 CNY per USD, appreciating 0.9% month-on-month, due to a combination of significant interest rate and growth differentials compared to China’s main trading partners. The currency is expected to remain broadly at current levels ahead. Our panelists see the yuan ending 2021 at 6.47 CNY per USD and 2022 at 6.45 per USD.