COVID-19 continues to spread across the world, but vaccination campaigns have made substantial progress in some countries. Incoming data support the narrative of a gradual global recovery as countries around the world maintain lockdowns with varying degrees of stringency.
The U.S. recovery is gathering pace, driven by a rapid vaccine rollout and substantial fiscal support, including the recently approved $1.9 trillion stimulus package.
By contrast, the euro area fell back into recession in 2020Q4, and persistently high COVID-19 infections, extended restrictions, and slow vaccine rollouts are setting the stage for a possible further contraction in 2021Q1.
China’s strong recovery has started to moderate. The country’s gross domestic product (GDP) growth reached 6.5 percent year-on-year in 2020Q4 as investment and net exports surpassed pre-COVID-19 levels, and more recent high-frequency data point to further moderation.
The government has set a growth target of at least 6 percent for this year. With a gradual shift away from investment and toward consumption, China’s growth has become fewer commodities intensive.
While China’s commodity demand is still growing strongly, it may not rise at the pace it did in the 2000s, which could weigh on the growth prospects of commodity exporters in Sub-Saharan Africa.
Global financial conditions remain exceptionally benign as major central banks have reaffirmed their commitment to continued asset purchases and keeping monetary policy steady.
This has fuelled significant debt issuance by corporates and governments to start the year. More recently, rising inflation expectations have caused yield curves to steepen in major advanced economies and, to a lesser extent, in local currency and dollar-denominated bonds in emerging markets and developing economies (EMDEs).
The steepening of yield curves has spilled over to other financial markets, with valuations of some risky assets experiencing sizable corrections in late February and early March.
Portfolio flows to EMDEs have weakened, with many EMDE currencies slipping. Following large declines in the early stages of the pandemic, commodity prices staged a broad-based recovery in 2020Q3.
Most commodity prices now exceed their pre-pandemic levels. Oil prices averaged $57 a barrel during January February 2021, supported by a gradual rebound in demand and continued production restraint among the Organization of the Petroleum Exporting Countries and the Russian Federation (OPEC+).
This year, oil prices are projected to remain around their 2021Q1 level before rising further to about $60/bbl in 2022, reflecting a faster-than-expected recovery of the global economy and strict adherence to continued supply cuts by OPEC+.
Oil demand is expected to firm in the second half of 2021, although it will not regain its pre-pandemic level until next year. Metals prices have increased sharply. Their January-February 2021 average was nearly 40 percent higher than a year ago.
The recovery in metals prices has been supported by continued strong demand from China. Over the past two years, China’s share of global demand exceeded 50 percent for aluminum and copper, the world’s most important metals in terms of volumetric consumption—China also increased its share in oil and coal demand.
The forecast for metals prices in 2021 has been revised upward, and prices are now expected to be nearly 20 percent higher in 2021 relative to last year.
Agricultural prices reached their highest level since 2014 earlier this year. The increase was largest for grains and oilseeds, with maize prices driven by surging demand from China.
Production shortfalls in some regions, including South America because of dry weather, are also supporting grain prices. Despite well-supplied global food markets, food insecurity remains acute in several low-income countries in Sub-Saharan Africa, especially those most affected by climate change or conflict.
Lost incomes, compounded in some cases by high food price inflation, are also contributing to the increase in food insecurity. More than 235 million people in Sub-Saharan Africa are food insecure and with insufficient food consumption.
Sub-Saharan Africa’s food system is under stress and food security challenges have intensified due to the COVID-19 pandemic.
The Democratic Republic of Congo, Ethiopia, Somalia, South Sudan, Sudan, and Zimbabwe are among the countries at greater risk of experiencing food security crises over the next 12 months.
Culled from Africa’s Pulse report released by World Bank in April 2021
