The Conference on Trade and Development, an entity from the United Nations, is forecasting a global economic growth rate of 4.7% for the year 2021. This suggests that most places in the world are showed marked signs of recovery from the advent of the pandemic. Particular credit is attributed to economic recovery demonstrated in the United States due to factors such as the successful vaccine rollout and landmark stimulus package.
While this is an undeniably positive outlook, this fortuitous news should be taken with a grain of salt. In the same UN report, it is cautioned that the virus will have a long-lasting economic impact. Managing COVID-19 will be a long-term government issue, threatening a return to austerity.
Not every country is thought to be faring well in the race to stabilize the world economy. A dearth in domestic demand in China may prove to be a hindrance, although it’s not a black and white issue. In 2020, China alone among major economies experience any expansion – GDP growth was calculated at 2.3% thanks in part to early successful management of COVID-19. The International Monetary Fund predicts the Chinese economy will improve by 8.1% in 2021. Foreign demand has exploded for the Asian nation, while domestic demand has slowed noticeably. Lowered household spending threatens to impede the momentum the world is cautiously enjoying.
With minimal instances of viral outbreaks from March 2020 onwards, China became enabled to to respond to global demand for medical supplies such in high demand such as personal protective equipment. China also has a foothold in the production of other highly-valued goods such as electrical appliances and various manner of processors. The economic powerhouse increased exports to a total of $468.87 billion in January and February. During this same period, Chinese exports to the US, their largest trading partner, surged by 87.3%. The trade surplus between these countries reached $51.26 billion, up $9 billion from two years ago. While this might seem like only good news for China, the slump in domestic demand can prove injurious to the global economy. As long as sluggish domestic growth continues to weigh down the global economy, the recovery effort will continue to depend to an unhealthy degree on stimulus packages and American and European consumption.
Meanwhile, prognosticators on Wall Street are describing an incoming bull market for some commodities. Historically, the overall record of commodity price fluctuations can be thought of as cyclical, or “seasonal”. Looking back through the last decade of leading commodities, it is undeniable they’ve oscillated away from and back towards their average prices. The Bloomberg Commodity Index (BCOM) has risen 11% over the last year. Three commodities in particular stand out:
1. Oil
Oil has been running rampant over the last 12 months, improving by over 100%. One of the reasons why is that organizations responsible for output have been practicing economically viable regulatory practices. OPEC has extended cuts for output through April of this year. Saudi Arabia has promised to do the same to the tune of one a million barrels every day. While there are some concerns about the inconsistency of demand, that hasn’t been a concern in prominent regions like the US.
2. Copper
This metal has doubled in price to more than $9,000/metric ton (a nine-year record). Supply is relatively scant, but demand for this industrial commodity is strong and steady. As the global economy continues to reemerge, demand is expected to grow as relevant consumption experiences a consistent uptick.
One likely permanent outcome of the pandemic is that many regions are pushing for more “green” energy production. One of the most popular examples of this shift is the increasing interest in electric vehicles. EVs use a variety of base metals for their batteries and other components. Copper is about four times more useful in EVs than in traditional vehicles which use gasoline. According to the International Copper Association, EV-based copper demand, which reached approximately 185,000 tons in 2017, will reach some 1.74 million tons by 2027.
3. Lithium
Lithium is in the midst of its best bull run in decades – its another EV-dependent metal. As it happens, well-known EV producer Tesla has begun an innovative venture to equip their models with lithium iron phosphate (LFP) batteries. These batteries are less reliant upon cobalt and nickel. Last December, LFPs were responsible for 5.9% of the world’s EV battery capacity. Tesla’s LFP-powered Model 3s accounted for 46% of Model 3 Sales in January.
The future of the global economy is constantly in flux, and remains partially unpredictable. What is clear is that rigorous and effective implementation of COVID-19 vaccines and a close eye on developing technologies will be irreplaceable.