International Macroeconomics
Highlights
Will capacity problems keep commodity prices high?
Although global demand for oil and minerals has been strong in recent years, driven by buoyant emerging markets such as China and India, supply constraints have become an increasingly important factor behind the rise in oil prices to record levels of almost US$150 pb. And it is the lack of supply response, in contrast to previous periods of high prices, that has caught the markets by surprise. So while world growth is slowing in response to the credit crunch and surging oil prices, commodity prices appear set to remain high for some time.
21 July 2008
The outlook for world food prices
World food prices have surged some 80% since the beginning of 2006. This rise has been due to a ‘nexus’ of demand and supply side factors including the weaker dollar, higher oil prices, climatic conditions, and fast growth and a changing diet in emerging markets. Most significant of all has been the huge expansion of demand for crop products for use in making biofuels. Currency effects and the impact of supply shocks should fade, but many of the demand-side factors look likely to be more long-lasting. Sustained high prices could open the door for significant reforms in farm policy, but in the near-term the most effective way of easing market conditions would be via a rethink of biofuels policy.
20 July 2008
Credit Crunch Watch:
The financial stress indicator has risen over the last week to a fresh high, above even the level seen during the Bear Stearns collapse in mid-March. This was driven by a renewed flight toward ‘safe haven’ assets in the wake of concerns about the health of the banking sector - which were brought into sharp focus by the problems at US mortgage lenders Fannie Mae and Freddie Mac. Meanwhile, monetary conditions have shown signs of moderately loosening again over the last few weeks, the result mostly of falling 2-year Treasury yields - reflecting a significant paring back of expectations of Federal Reserve rate hikes over the next year.
18 July 2008
New Country Briefings
We are publishing new on-line briefings every day covering economic and political developments and prospects in over 175 countries, linked to our forecast databank. View example briefs: