|The World Bank just published its January 2014 Commodity Outlook. With the exception of energy, all the key commodity price indices declined significantly in 2013. Fertilizer prices led the decline, down 17.4 percent from 2012, followed by precious metals (down almost 17 percent), agriculture (-7.2 percent), and metals (-5.5 percent).|
Global financial integration and the linkages between the financial and the real sides of economies are sources of huge policy challenges. This is now beyond doubt, after what we saw in the run-up to and the unfolding of the 2008 global financial crisis.
Renewed Euro Area tensions cut into capital flows to developing countries in May and June, and prompted a sharp downturn in business sentiment worldwide. Together these developments point to slower growth in 2012Q2 and Q3, unless recent improvements in financial markets and policy steps cause business sentiment to strengthen.
Important developments today:
1. Bank deposits are moving out of riskier European countries.
Global financial markets are eager for policy action. Bond yields for high-spread Euro Area sovereigns remain high, but eased somewhat this week with successful bond issuances by France and Spain and optimism that EU leaders will reach agreement to resolve the debt crisis at the forthcoming December 9th EU summit.
Financial market volatility remains sharply elevated this week as market attention shifted from Greece, to Italy and even France. Concern about counterparty risk kept European banking-sector spreads high, even as banks mark-down and sell-off distressed Euro Area sovereigns to repair their capital base. Continued turbulence and credit tightening could prompt sudden reversals in global capital markets. In 2012, developing country external financing requirements are estimated at $1trn (7.1% of GDP), of which two-thirds is accounted for by short-term debt. Developing Europe and Central Asia, with debts coming due equal to 7.6% of GDP, is the developing region most vulnerable to a tightening of financial conditions. Worries about faltering world demand, led by expectations of recession in Europe, have contributed to deep declines in international commodity prices.
(Available in Chinese)
This is the first blog post I write after revisiting China’s recent economic developments, the outlook, and policy implications as part of writing our latest China Quarterly Update. After this general overview I will in a few days write one on some interesting medium term trends on relative prices and the relative importance of external trade in China’s economy (they are also discussed in the Quarterly).
The term “normalization” has been used a lot lately in relation to the composition of growth and macroeconomic policy stance, also in China. But it is hard to avoid it. During 2010, China’s composition of growth started to “normalize”—as in look like it typically does—after the spectacular developments in 2009, when a massive government-led domestic demand surge offset a huge contraction in exports. Later in 2010, the macroeconomic policy stance also started to “normalize”. I guess many of us use the word “normalization” to describe or prescribe a macro policy stance that would be in line with the “normalized” economic outlook, as opposed to a particularly tight stance.
(Available in Chinese)
Food prices have received a lot of attention recently. Understandably, much of the attention is on recent developments and short term prospects. But in this blog post I try to look back at some longer term trends, in order to look further ahead.
Since the early 2000s, food related prices have trended up (Figure 1). The deflator of agricultural value added has risen 8% per year on average since 2000, after falling during the second half of the 1990s. Producer Price Index (PPI) food prices (factory gate) have risen much less because prices of other inputs into the food processing industry have gone up less and rapid productivity growth in food processing has dampened the transmission of higher raw food prices.