![]() The analysis suggests that augmenting model-based forecasting approaches-by incorporating the dynamics of commodity prices over time and controlling for other economic factors-enhances forecast accuracy. Machine-learning techniques yield better forecasts than some of the traditional approaches. Time-series models based on multiple independent variables tend to outperform other model-based approaches as well as futures prices. It finds that futures prices, which are widely used for price forecasts, often lead to large forecast errors. A Special Focus section evaluates the performance of several approaches used to forecast prices of seven industrial commodities. These risks include intensification of geopolitical tensions, the strength of demand from China following its post-COVID reopening, likely energy supply disruptions, and weather conditions, including the emerging El Niño. Commodity prices are expected to fall by 21 percent this year and remain mostly stable in 2024, although the outlook is subject to multiple risks in a highly uncertain environment. The unwinding of prices reflects a combination of slowing economic activity, favorable winter weather, and a global reallocation of commodity trade flows. Global commodity prices fell 14 percent in the first quarter of 2023, and by the end of March, they were roughly 30 percent below their June 2022 peak. In the longer term, reversing a projected decline in EMDE potential growth will require reforms to bolster physical and human capital and labor-supply growth. Continued international cooperation is also necessary to tackle climate change, support populations affected by crises and hunger, and provide debt relief where needed. Among many EMDEs, and especially in low-income countries, bolstering fiscal sustainability will require generating higher revenues, making spending more efficient, and improving debt management practices. Comprehensive policy action is needed at the global and national levels to foster macroeconomic and financial stability. In low-income countries, in particular, fiscal positions are increasingly precarious. Rising borrowing costs in advanced economies could lead to financial dislocations in the more vulnerable emerging market and developing economies (EMDEs). The possibility of more widespread bank turmoil and tighter monetary policy could result in even weaker global growth. Inflation pressures persist, and tight monetary policy is expected to weigh substantially on activity. Global growth is projected to slow significantly in the second half of this year, with weakness continuing in 2024. The magnitude of the effects will depend on the duration and scale of the supply disruptions. If the conflict does escalate, the assessment also includes what might happen under three risk scenarios, relying upon historical precedents to estimate the effects of small, moderate, and large disruptions to the global oil supply. Under that assumption, the baseline forecast calls for commodity prices to decline slightly over the next two years. It finds that the effects of the conflict are likely to be limited, assuming the conflict does not widen. A Special Focus section provides a preliminary assessment of the potential impact of the conflict on commodity prices. Nevertheless, history suggests that an escalation of the conflict represents a major risk that could lead to surging prices of oil and other commodities. ![]() Prices of oil and gold have risen moderately, but most other commodity prices have remained relatively stable. ![]() For now, the war’s impact on commodity prices have been muted. As a result, the World Bank’s commodity price index rose 5 percent over that period and is now 45 percent above its 2015-19 average. Before the conflict began, voluntary oil supply withdrawals by OPEC+ producers pushed energy prices up 9 percent in the third quarter. The conflict in the Middle East-the latest of an extraordinary series of shocks in recent years-has heightened geopolitical risks for commodity markets, in an already uncertain global environment.
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