IMF: World Economic Outlook 2000
Norsk sammendrag
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Content:

Commodity Prices and Commodity Exporting Countries
The Oil Market
What Keeps Nonfuel Commodity Prices So Weak?
Implications For Commodity Exporting Countries
Implications of Higher Oil Prices for the World Economy

• Table 2.9. Utvalgte råvarer - prisendringer den seneste tiden (Selected Primary Commodities: Recent Price Movements)
• Table 2.10. Eksportavhengighet og bytteforhold (Nonfuel Commodity Exporters: Export Dependency and Terms of Trad

Commodity Prices and Commodity Exporting Countries

Over the past three years, large swings in commodity prices have greatly affected many countries. After peaking in 1996, commodity prices fell by 30 percent in 1997–98, due to fall-out from the Asian crisis as well as favorable harvests of some crops, causing a substantial terms of trade shock for commodity exporting developing countries (Figure 2.12). The oil price rebound in 1999–2000 has reversed these losses for oil exporters, but has substantially worsened the position of most other commodity exporters—many of which are among the poorest countries—especially given the relatively weak outlook for nonfuel commodity prices. In the advanced economies, commodity price developments have generally been helpful from a cyclical perspective, although the most recent rise in oil prices may add to inflationary risks, as well as slow output growth.

The prices of many key commodities have moved relatively independently over the past 12 to 18 months. While fuel prices have increased sharply, prices of nonfuel commodities have staged modest recoveries at best, with agricultural prices being particularly weak, despite rising global demand. In consequence, the IMF’s nonfuel commodity index remained about 20 percent below 1995–97 levels through June 2000. 36 The remainder of this section focuses on the outlook in the oil market, the reasons for the underlying weakness of nonfuel commodity prices, and the implications of these developments for commodity exporting and importing countries.

The Oil Market

Oil prices have increased sharply in the last year and half, rising from under $12 a barrel in the first quarter of 1999 to almost $27 a barrel in the second quarter of 2000, and are now at a 15-year high (excluding the Gulf war period) in both real and nominal terms.37 The rapid run up in world oil prices—from historically low levels—initially reflected supply constraints that followed a series of agreements involving major oil exporters beginning in March 1999. More recently, the upward pressure on oil prices has reflected more buoyant current and expected world demand growth as well as the limited capacity of oil producers, apart from a few major members of OPEC, to increase production. In the first half of 2000, prices fluctuated in the $25–$30 a barrel range, and continued to display considerable volatility (with day to day changes in spot prices of $1 a barrel not uncommon). Box 2.2 reviews recent developments in global oil markets, while risks to the projections are outlined below.

As a result of the recent run up in prices, as of early September, spot oil prices (at more than $33 a barrel) and oil prices futures were over 20 percent higher than projected in the World Economic Outlook. Given the announced intention of OPEC members to hold oil prices in a $22 to $28 a barrel range, additional demand pressures could in principle be met through further increases in supply. While non-OPEC exporters are producing close to capacity (see Box 2.2 for details), some estimates indicate that OPEC member countries could increase supply by about 3 million barrels a day. However, this excess capacity is concentrated in a few countries, while an adjustment in supply targets would need to be agreed to by all OPEC members. In an environment of strengthening global demand and low oil inventories, the risks to oil prices would appear to be on the upside. At the OPEC meeting on September 10, OPEC members agreed to raise production by 800,000 barrels a day, about 3 percent of OPEC production or 1 percent of total world production. In the immediate aftermath of the meeting, oil prices continued to rise.

What Keeps Nonfuel Commodity Prices So Weak?

In many nonfuel commodity markets, the surprise has been the lack of larger price movements and consequently a persistence of prices at low levels when compared with pre-Asian crisis prices. From mid-1997 into 1999, the weakness in the prices of most commodities reflected largely the disruptions in demand growth, particularly in Asian markets. More recently, as the global recovery has gained pace, favorable conditions have increased supplies of many commodities and have kept price pressures in check.

The prices of most agricultural commodities have been particularly weak, in part because production did not adjust quickly to the slump in demand in 1998–99. For cereals and oilseeds, weather conditions, particularly in the Western Hemisphere, have been much more favorable in the late 1990s than in the mid-1990s, and there also was a slowing of the growth in global demand for livestock feed. Commodities such as coffee, cocoa, and sugar carry high fixed costs of planting trees and cane, and therefore downward adjustments to supply typically occur slowly, because it can be profitable to harvest in the short run even if prices are below total production costs. Even for cotton, which unlike the perennials above must be replanted each year, heavy infrastructure and other investment result in a high proportion of fixed costs; these farmers also may choose high production levels even if prices are low. This has resulted in rising stocks in some cases, putting further downward pressure on prices and dimming prospects for a price rebound. World Economic Outlook projections assume a moderate price rise for these commodities, but on average prices are not expected to return to 1995–97 average levels in the near term.

The prices of other nonfuel commodities have shown modest increases since early 1999, but still remain well below their 1995–97 averages. The prices of most metals and some other industrial inputs have already increased from their lowest levels in mid-1999, but the increases have been less than might be expected given the rise in global demand. For example, through the end of August 2000, the price of copper remained about 30 percent below its 1995–97 average, in part reflecting, until recently, high stock levels. This continuing weakness is also due to the slow pace at which supplies of these commodities have adjusted to changing market conditions. As with agricultural goods, metals prices are expected to increase but remain below previous peaks, with the exception of nickel, which surpassed its average price in 1995–97.

Implications For Commodity Exporting Countries

The recent movements in commodity prices have significantly impacted a number of commodity exporting countries, particularly those that export only a few commodities. Table 2.9 shows price movements in key commodities through June 2000 compared to a 1995–97 base period. Table 2.10 shows the impact of these changes on the most affected nonfuel commodity exporting countries, defined as those that have experienced a combination of lost export revenues and higher oil import costs amounting to at least 10 percent of total exports compared with 1995–97. 38 Nearly 30 countries have experienced cumulative terms of trade losses of more than 10 percent, and in over 10 countries the terms of trade losses exceed 20 percent. Losses measured as a percent of domestic absorption are also large in many cases. They range from about one percent of domestic absorption (Brazil, Haiti, Rwanda, Tanzania) to more than 8 percent (Guyana, Zambia), and average about 4 percent. Agricultural exporters, particularly exporters of coffee, cocoa, and cotton, and also those that import large amounts of oil relative to total exports have been hardest hit. Burundi, with its dependence on coffee (70 percent of total exports), and Mali, with its reliance on two exports (cotton and gold), are examples of the first group, while Tanzania and Haiti are two countries where a high oil import dependency resulted in gains in 1998, but losses in 2000.

Regrettably, almost all of the countries hit hardest by falling commodity prices are also among the world’s poorest. All but two (Brazil and Chile) are classified as low-income countries by the World Bank; over half are in sub-Saharan Africa; and sixteen are Heavily Indebted Poor Countries. In addition, average output growth for this group declined in 1998– 2000, compared with the base period, consistent with studies that find that heavy dependence on nonfuel commodity exports is negatively related to output growth.39 The low incomes and poor performance of these commodity exporters underscore the importance of export diversification as a longer-term objective, provided diversification comes in areas of comparative advantage and is commercially viable.

In general, adjustment to a permanent negative terms of trade shock requires a reduction in domestic absorption, accompanied by a real exchange rate depreciation particularly when access to international capital markets is limited.40 This tends to occur because a negative terms of trade shock lowers domestic income (and wealth, if the shock is perceived as permanent) and demand. The demand slowdown may reduce inflation and contribute to a real depreciation, which may be augmented by downward pressure on the nominal exchange rate associated with an initial deterioration in the current account.

In many cases, however, restrictive fiscal policies—and in some cases a flexible exchange rate—are needed to augment market forces and reduce demand. Uganda provides a good example of the needed adjustments. Coffee makes up more than 50 percent of exports in Uganda, which experienced a terms of trade loss equivalent to 3½ percent of domestic demand in 1998–99 (close to the group average). By cutting back on planned spending and keeping priority spending mostly on track, Uganda succeeded in offsetting lower government revenues (related in part to the decline in coffee prices and the regional drought). External balances were held in a sustainable range as a depreciation of the Ugandan shilling essentially offset the terms of trade deterioration. Uganda also benefits from debt relief under the Initiative for Heavily Indebted Poor Countries (HIPCs).41

Table 2.11 presents similar terms of trade calculations for the countries in which oil exports made up at least 20 percent of total exports in the base period (1995–97). The 22 countries represented include a mix of economies, the majority of which are low income. In the case of Oman, Libya, and Nigeria, where oil exports account for some 90 percent of net exports, the drop in oil prices in 1998 cut export receipts by up to 28 percent, or about 11 to 15 percent of domestic absorption.42 When the prices rebounded in 1999–2000, fuel exporters more than recouped these losses, and by 2000 all of these countries were showing substantial terms of trade gains—25 percent and more in about one-half of the countries.

The positive terms of trade shock to the oil exporters in 1999–2000 has clearly been a benefit and brought relief after the 1998–99 price slump, especially to the lower-income countries. At the same time, the increase in oil prices presents challenges to policymakers who need to ensure that increasing oil revenues are not wasted. For example, Cameroon, where oil accounted for 30 percent of exports in the base period, has responded to the recent rise in oil prices at a time when coffee and cocoa prices remained weak by allowing government spending to increase slightly in the current fiscal year compared with the budget, while devoting the bulk of the unanticipated revenue increase to a reduction in bank borrowing.43 This approach of partially ‘sterilizing’ revenue surprises and limiting the pass through to government spending may work well in other low-income countries facing similar demands on resources. For the higher-income oil exporters, the key policy challenge associated with higher oil prices is both to maintain fiscal discipline and strengthen ongoing structural reforms. Among the members of the Gulf Cooperation Council (GCC), episodes of falling oil prices in the 1980s through the mid-1990s were addressed by a mix of financing and fiscal adjustment measures—an approach made possible by large official assets and access to international capital markets. In the later part of the decade, many countries in the region undertook fiscal and structural reforms aimed at fostering longer-term sustainability through improved fiscal balances and more diversified economies. It is important that the pace of these reforms do not slow. Indeed, governments in the region could take the opportunity provided by buoyant revenues to speed up the reform process, including trade liberalization, to enhance economic efficiency and bolster investor confidence.

Implications of Higher Oil Prices for the World Economy

As noted above, the World Economic Outlook projections of oil prices may be subject to potential upside risk. Indeed by early September, spot oil prices (at about $33 a barrel) and oil price futures were substantially higher than when the oil price assumptions used in this World Economic Outlook were set.44 This change in prices, if sustained, would suggest an upward revision to the oil price baseline of about $2.50 a barrel (or almost 10 percent) in 2000 and almost $5 a barrel (or about 21 percent) for 2001 and beyond.

Higher oil prices affect the world economy through several channels, with the most immediate impact felt through trade balances. Given a sustained $5 a barrel increase in oil prices (and assuming no change in oil trade volumes), aggregate net oil imports by advanced economies would increase by about $40 billion annually; trade balances among the oil-exporting countries would rise by a corresponding amount, with the bulk of the increase accruing to the Middle East region.45 In aggregate, the change in the trade balance in dollar terms for other developing country regions would be relatively small. However, a number of developing countries will be seriously affected as trade balances would deteriorate by more than ½ percent of GDP, leading to a sharp contraction in domestic absorption particularly for countries with large current account deficits or with limited access to external financing. As shown in Table 2.12, these include a number of emerging market countries, as well as many transition and low-income economies (especially in Africa).

Higher oil prices would also have a direct impact on global activity and inflation. In particular, higher oil prices would put upward pressure on prices. This could cause central banks—particularly in the cyclically-advanced countries—to raise interest rates, which— along with the direct impact of the terms of trade shock—would lower GDP growth. This, in turn, would add to the direct impact of higher oil prices on activity in developing countries.46

Based on the ready reckoners displayed in Table 2.13, derived using the Fund’s MULTIMOD economic model, a sustained $5 a barrel increase in world oil prices (almost 20 percent higher than prices in the first half of 2000) would result in a reduction in output of about 0.2 percent in the major industrial countries after one year, while—notwithstanding higher interest rates—consumer price inflation would rise by 0.2 to 0.4 percentage point (less than in previous episodes since the ratio of oil consumption to GDP has significantly fallen over time).47 Among the developing country regions, output in Asia—which is relatively dependent on imported oil—would decline by 0.4 percent, while there would be little net output impact in Africa and the Western Hemisphere regions because both include a mix of oil importers and producers. However, as discussed above, the impact on some individual countries could be significantly more serious.

Notes

36 From end-June through end-August 2000, nonfuel commodity index fell another 4 percent.

37 Based on a simple average of spot prices for U.K. Brent, Dubai, and West Texas Intermediate. This basket of crude oil is also used to compute the baseline assumptions in the World Economic Outlook. It differs from the basket used for the OPEC reference price, which is a simple average of seven crude prices (Saharan Blend, Indonesian Minas, Arabian Light, Dubai, Tia Juana Light, Bonny Light, and Isthmus).

38 The base period 1995–97 precedes the commodity demand shock attributed to the Asian crisis. The estimates reflect price changes from the base period and hold trade volumes unchanged from the base period. The loss estimates can be thought of as partial terms of trade effects, expressed as a percentage of base period export earnings. See footnote 2 to the table for details on the underlying calculations.

39 Chapter IV of the May 2000 World Economic Outlook reviews the developing country growth issues in detail. In particular, Table 4.7 examines the relationships between terms of trade and real growth.

40 Temporary terms of trade shocks can be met with a mix of reduced domestic absorption and borrowing, depending on a country’s access to external capital markets. Because it is often difficult to distinguish between temporary and permanent shocks ex ante, it may be prudent to seek a reduction in absorption at the outset.

41 See Chapter IV, "How Can the Poorest Countries Catch Up?" of the May 2000 World Economic Outlook for a review of progress in HIPCs.

42 The table assumes unchanged volumes from the 1995–97 base period. Price changes are also measured relative to this base period. See footnote 3 in the table for more details.

43 This is being accomplished through a framework that allows for price "surprises" to feed partially through to spending and partially to borrowing (or debt repayment) in a symmetric way as oil prices rise and fall. In the medium term, sustained higher oil prices would provide scope to meet pressing human development needs, provided expenditure management is improved.

44 Based on closing prices on September 8. Oil price assumptions for the World Economic Outlook projections were set in mid-July with average prices for 2000 and 2001 projected to be $26.53 and $23.00 a barrel, respectively . See "Oil Price Assumptions and the World Economic Outlook," Box 1.4, of the October 1999 World Economic Outlook for information on methodology used to set the oil price assumption.

45 These calculations do not take account of the potential impact of higher oil prices on other energy substitutes (such as gas).

46 Since the oil exporting countries have a lower propensity to consume than do the oil importing countries, higher oil prices also tend to raise global savings and to reduce global growth and trade volumes.

47 A "ready reckoner" provides a rough idea of the relationship between two variables, in this case relating a percentage change in oil prices to changes in output growth and inflation rates. See "Oil Price Assumptions and the World Economic Outlook" for a more complete analysis including the macroeconomic implications for developing countries.

Norsk sammendrag

Dette sammendraget er en oversettelse av innledningen til WEO2000s avsnitt om råvarepriser og råvareeksporterende land:

"De siste tre årene har store svingninger i råvareprisene hatt stor innflytelse i mange land. Etter en topp i 1996 falt råvareprisene med 30 prosent i 1997-98, som følge av Asia-krisen så vel som gode innhøstninger for enkelte avlinger. Dette førte til et betydelig skjokk i bytteforholdet for råvareeksporterende utviklingsland. Økningen i oljeprisen 1999-2000 har reversert disse tapene for oljeeksporterende land, men har ført til en betydelig forverret situasjon for de fleste andre råvareeksportører - blant disse finner vi de fattigste landene - spesielt på grunn av de relativt svake utsiktene for andre råvarer enn olje og gass. I avanserte økonomier har utviklingen i råvareprisene generelt vært positiv fra et syklisk perspektiv, selv om de aller seneste prisøkningene på olje øker risikoen for inflasjon, så vel som svakere vekst."