Paul Lachine

The Global Implications of Falling Commodity Prices

China's growth slowdown has serious implications for the convergence of developed and developing countries’ per capita income levels. Just as China’s economic boom benefited commodity-dependent developing countries, its slowdown – and the concomitant commodity-price downswing – is undermining their economic growth and development.

NEW YORK – The decade-long commodity-price boom has come to an end, with serious implications for global GDP growth. And, although economic patterns do not reproduce themselves exactly, the end of the upward phase of the commodity super-cycle that the world has experienced since the early 2000’s dims developing countries’ prospects for continued rapid catch-up to advanced-country income levels.

Over the year ending in July, The Economist’s commodity-price index fell by 16.5% in dollar terms (22.4% in euros) with metal prices falling for more than two years since peaking in early 2011. While food prices initially showed greater resilience, they have fallen more sharply than those of other commodities over the past year. Only oil prices remain high (though volatile), no doubt influenced by the complex political events in the Middle East.

In historical terms, this is not surprising, as our research into commodity super-cycles shows. Since the late nineteenth century, commodity prices have undergone three long-term cycles and the upward phase of a fourth, driven primarily by changes in global demand. The first two cycles were relatively long (almost four decades), but the third was shorter (28 years).

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