World Bank predicts near stagnant commodity growth for 2010 and 2011

News - Banking

Written by Ray Clancy

Friday, 29 January 2010 09:16

The impact of the financial crisis will hold back commodity price growth in 2010 and 2011 as economies take time to rebuild, the World Bank has predicted.

In its latest report on the state of world’s financial system, the bank said there were many uncertainties about the strength of any recovery seen in 2010 and it expects commodity prices to be near stagnant as a result of the low growth environment.

It predicted oil prices would remain broadly stable throughout 2010, at around $76 a barrel. Other commodities would only rise by around 3% per year during the next two years.

‘We cannot expect an overnight recovery from this deep and painful crisis, because it will take many years for economies and jobs to be rebuilt,’ said the World Bank’s chief economist Justin Lin.
The Bank is forecasting global GDP growth of 2.7% this year, followed by 3.2% in 2011.
The report, which focuses specifically on the impact of the crisis on developing economies, also warned that businesses in developing countries would struggle to borrow capital, lowering growth in developing nations.

Andrew Burns, lead author of the report, said: ‘As international financial conditions tighten, firms in developing countries will face higher borrowing costs, lower levels of credit, and reduced international capital flows.

‘As a result, over the next five to seven years, trend growth rates in developing countries may be 0.2% to 0.7% lower than they would have been had finance remained as abundant and inexpensive as in the boom period,’ he added.

At the same time billionaire investor George Soros, arguably the most famous hedge fund manager in history, is warning that low interest rates could end up creating a gold bubble.

‘When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold,’ Soros said at the World Economic Forum in Davos this week.

Gold prices last month reached a record level of just over $1,225 per ounce, having risen around 40% last year. Investors are piling into the metal amid fears both of potential inflation and fading faith about the stability of previously assumed safe assets such as government debt.

However, the chairman of Barrick Gold, the world’s biggest producer, Peter Munk, said he expected the metal’s upward march to continue.