Commodity prices boom more broad-based, says IMF


The current commodity price boom has been more broad-based and lasted longer than previous ones, with prices rising by more than usual, the International Monetary Fund said on Thursday.


According to an IMF study, global commodity prices have risen by about 75 per cent in real terms since 2000 and, more recently, have stayed strong despite a downturn in global economic growth.


"This suggests that the current boom reflects a confluence of mutually reinforcing demand and supply factors," the IMF said, "as well as the effects of increasingly important links among commodity prices and supportive financial conditions, including US dollar depreciation and low real interest rates."


IMF chief economist Simon Johnson said it was puzzling that commodity prices – usually a key indicator of changes in the global economy – hadn't declined with forecasts of a slowdown in the world economy.


"There is a puzzle there and the other possible answer is that the global economy may not be slowing down, perhaps we and others are wrong, but it could also be ... that real interest rates are down in dollar terms and may be encouraging people to take other positions," he added.


Still, the IMF study said the commodity price boom had helped emerging and developing economies become bigger players in the global economy, driven by growing demand from China and other fast-growing economies.


It also said commodity exporters in the developing world had benefited more from the current boom than before, mainly because policy barriers to trade and financial flows have steadily eased and economic management has improved.


The IMF said total trade – both imports and exports – now constitute between 50 to 100 per cent of gross domestic product in emerging and developing economies. Also, total foreign capital (assets and liabilities) ranges from 100 to 200 per cent of GDP across developing world regions, he said.


Most of the exports are to advanced economies, but buoyant demand across developing economies has also helped advance industrialisation in a broad range of countries, the IMF said.


Manufacturing exports to advanced economies have tripled in US dollar terms since the early 1990s, whereas those to China have grown even more dramatically, albeit from a low initial level.


Johnson said the IMF analysis implies that even if commodity prices were to lose steam, progress of developing countries into the global economy would probably continue.


"Continued improvements in institutional quality, financial deepening, fiscal prudence, and external liberalisation will continue to be important drivers of integration," he said. (Reuters)