Column: Commodity prices are expected to be hit by a slowdown before the end of 2023: Kemp

An employee works near a molten aluminum mixer in Krasnoyarsk, Russia, July 27, 2016.

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LONDON, Jan 27 (Reuters) – Prices for a wide range of commodities have risen to their highest level in seven or more years as drillers, miners and farmers struggle to keep up with soaring demand as the economy recovers from the pandemic.

Energy prices are at their highest since 2014 while non-energy prices are the highest since 2011, according to the World Bank (“Commodity prices – pink sheet data”, January 5).

Commodity prices have always been cyclical and recent increases will almost certainly set the conditions for the next downturn, as they have in the past.

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In theory, rising prices could be reversed by faster growth in production, slower growth in consumption, or a combination of both.

In practice, the most likely trigger is a slowdown in the global manufacturing cycle that slows the growth in commodity consumption.

There are already signs that the manufacturing cycle has crossed an inflection point, with rapid growth following the pandemic and lockdowns giving way to moderate growth rates by Q4 2021.

Business surveys, industrial production estimates and freight movements all indicate that the rate of expansion slowed in the second half of last year in North America, Europe and Asia.

The global manufacturing sector is expected to experience a significant mid-cycle slowdown or even a late-cycle recession by mid-2023.

Rising commodity prices, energy shortages, capacity constraints in the manufacturing sector, demand forecasting errors and rising interest rates are all potential triggers themselves.


Since 1950, there have been at least 19 distinct dips in the index of manufacturing activity in the United States compiled by the Institute for Supply Management (

Not all have been declared official “recessions” by the US National Bureau of Economic Research’s Business Cycle Dating Committee.

Some were mid-cycle downturns, periods of weaker growth in an otherwise unbroken expansion, but they were usually severe enough to force the US central bank to cut interest rates or provide other stimulus. .

The long, relatively low-inflation expansions of the 1960s, 1990s and 2010s were all punctuated by one or more of these mid-cycle downturns.

Mid-cycle downturns may have contributed to the long duration of these three exceptional expansions by temporarily easing emerging capacity constraints and inflationary pressures.

The average interval between ISM index lows, whether in recessions or mid-cycle downturns, is about 37 months since 1980 or 39 months since 1950.

The current expansion, which dates from April 2020, when most major economies were in lockdown during the first wave of the pandemic, is already almost 22 months old.

By the second or third quarter of 2023, the expansion will have reached the average duration of the arrival of a recession or a slowdown.


There was considerable variation in the length of these manufacturing cycles, with a standard deviation around the average of 17-18 months.

As a result, efforts to predict the timing of recessions have challenged even the most experienced researchers of the business cycle.

In the past, researchers have identified possible Kitchin cycles of 3 to 4 years attributed to inventory changes and Juglar cycles of 7 to 11 years attributed to investments in long-lived buildings and equipment.

But although there is evidence for periodicity, it is not regular and stable enough to serve as a reliable guide for business cycle forecasting (“Business Cycles: Theory, History, Indicators and Forecasting”, Zarnowitz, 1992) .

Nonetheless, by mid-2023 the current expansion will be relatively mature, so any forecast for manufacturing activity and commodity consumption must include a significant likelihood of some sort of slowdown.

It would be a mistake to project current levels and growth rates of commodity production and consumption through 2022, 2023 and 2024 without considering likely macroeconomic fluctuations in the interim.

Commodity prices and the macroeconomic cycle are inextricably linked. Ongoing supply chain issues and commodity-driven inflation are likely to sow the seeds of their own demise by making interest rate hikes and a macroeconomic slowdown more likely next year.

Related Map Book:

– Global economic indicators early 2022:

Associated columns:

– Escalating inflation in the United States forces a rethink of macroeconomic policy (Reuters, January 13) read more

– Global economy faces biggest inflation headwind (Reuters, Oct. 14)

– John Kemp is a market analyst at Reuters. Opinions expressed are his own.

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Editing by Jan Harvey

Our standards: The Thomson Reuters Trust Principles.

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