Falling commodity prices as a result of covid-19 instantly put a strain on public finances
for providing the world economy with the raw materials it needs to grow is perpetual vulnerability. The hyperglobalisation of recent decades, and the associated Chinese growth miracle, yielded large benefits to commodity producers of all sorts. Now, as the shock of the covid-19 pandemic works its way through the world’s new, tangled economic plumbing, commodity-dependent economies find themselves exposed.
Markets have fallen dramatically as the pandemic has gained strength. Soyabean prices are off by nearly 6% from January highs, copper by more than 10%, and oil by around 30%. Brent crude fetched $74 per barrel in April of last year and $69 as recently as January, but is now trading at around $52. Prices could fall further if the outlook for the economy deteriorates further, and travel and trade dwindle.
Cutbacks in production because of sagging demand for raw materials also affect the strength of the domestic economy: there is less work, and less money to be spent on local goods and services. Growth forecasts are already being revised down for mineral-rich countries like Russia and South Africa.
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