The National Monetary Fund (IMF) has published this Tuesday (03.10.2023) a research entitled “Fragmentation and commodity markets: vulnerabilities and risks”, which shows how new trade disruptions could affect commodity prices, economic activity and the energy transition.
This phenomenon of fragmentation has been aggravated by the Russian invasion of Ukraine in 2022, which poses a threat to both global food security and the ecological transition. For this, the international organization analyzed 48 basic products, including agricultural products, energy products (namely coal, crude oil and natural gas and other mineral products); and considered the fragmentation of world commodity markets into two hypothetical geopolitical blocs, based on the vote of the United Nations General Assembly March 2022 demanding that Russia end its war against Ukraine, as a starting point.
Following the analysis, the IMF considers that, although the situation is critical, there are several considerations that could provide more effective protection in this regard. And it concludes with: Four findings: The raw materials They are particularly vulnerable to fragmentation due to concentrated production, difficult-to-substitute consumption and their central role in technologies; further fragmentation would lead to large swings in the Prices of commodities and more volatility; disruptions in commodity trade would have very uneven effects across countries, although overall losses appear moderate, given offsetting effects across countries, and indicates that low-income countries could bear a disproportionate share of the economic cost, caused by their high dependence on agricultural imports; finally, fragmented mineral markets would make production more expensive. energy transition, reducing investment in renewable energy and electric vehicles by a third by 2030. In this regard, the IMF calls for multilateral cooperation on trade policies to reach an agreement on “Green and food corridors".
Such findings argue how the multilateral cooperation would help ensure food security, economic growth and climate change mitigation.
And they suggest that, similar to multilateral efforts, countries They should also consider broader policies that strengthen resilience to crises, including: Stronger macroeconomic, structural and fiscal policy frameworks; Large fiscal and financial buffers; Reinforced safety nets; Preparedness for sudden disruptions in commodity supplies.
An international initiative that could also improve the data exchange and standardization in mineral markets. (Chapter 3: World Economic Outlook, October 2023)
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