5th January 2021
Serajul Islam Quadir

The impact of the second wave of Covid-19 on energy prices, despite some recovery, may persist beyond 2021 as the experts apprehended. Oil prices fell substantially during the beginning of COVID-19 and have only slightly regained pre-pandemic price levels.

Agriculture prices were relatively unaffected by the pandemic, but the number of people at risk of food insecurity has risen as a result of the broader effects of the global recession.

The impact of COVID-19 on energy markets may continue over the next more than a year and it will have also a blow on the expected economic boost up in the world, a senior official of the World Bank Group said.

"When declines in commodity prices are short-lived, policy stimulus can buffer their impact. However, when prices remain depressed for an extended period, policy makers need to find solutions so their economies can adjust smoothly to a new normal. Because of COVID-19, the new normal for oil-exporting emerging and developing economies arrived earlier. In the post-COVID world, these countries need to be more aggressive in implementing policies to reduce their reliance on oil revenues,” said Ayhan Kose, World Bank Group Acting Vice President for Equitable Growth, Finance & Institutions and Director for the Prospects Group.

Oil prices are expected to average $44 per barrel in 2021, up from an estimated $41 per barrel in 2020.

Demand is expected to rise gradually and day by day that it might be a slow pace as tourism and travel continue to be held back by health concerns and as global economic activity is anticipated to return to pre-pandemic levels only in the year after next.

Supply restraint is expected to be eased steadily.  Energy prices overall —which also include natural gas and coal—are expected to rebound sizably in 2021, following large declines in 2020, an upward revision from April’s forecast.

Health experts and noted economists around the world feel that a resurgence of a second wave of the pandemic that results in more lockdowns and less consumption, and delays in vaccine development and distribution, could lead to lower energy prices than forecasted.

Several countries in Europe and other parts of the World (including North American countries mainly Canada) have already started to introduce lock down mechanisms to contain this highly contagious disease and also to protect the health of mass people.

The Kingdom of Saudi Arabia has already stopped all kinds of international flights to subdue the rapid spread of the coronavirus. All these new imposition of restrictions have largely had an adverse effect on the much expected tourism industry meaning the demand for oil will be lower.

The economy of Thailand and more other countries is highly dependent on tourism and now they are recounting their calculation.

Metal prices are expected to post modest increases in 2021 after falling in 2020, supported by the ongoing recovery in the global economy and continued stimulus from China. A prolonged period of weak global growth would lead to lower prices than forecast.

Agriculture prices are expected to rise slightly in 2021, following an estimated 3% increase in 2020 following some shortfall in edible oil production. Concerns about food insecurity remain relevant in several emerging markets and developing economies. These concerns are prompted by hits to incomes from the global recession, bottlenecks in food availability at the local level, and border restrictions that have constrained labor supply. Food price inflation has spiked in several countries.

The pandemic is only the latest in a long history of shocks to commodity markets. A special focus looks at the nature of commodity price shocks on 27 commodities during 1970-2019. It finds that highly persistent and short-lived shocks have contributed almost equally to commodity price variation, although with wide variety across commodities. Permanent shocks account for most of agricultural commodity price variability while transitory shocks are more relevant in industrial commodity prices. The varied duration of such shocks points to a need for policy flexibility.

 A transitory commodity price shock may call for stimulative fiscal policy to smooth consumption; countries that depend on exports of commodities subject to cyclical price swings may want to build fiscal buffers during the boom phase and use them in the bust period to support economic activity. In countries that rely heavily on commodities that are subject to permanent shocks, structural policies such as economic diversification and broadening the tax base may be needed to facilitate adjustments to new economic environments.

The World Bank Group, one of the largest sources of funding and knowledge for developing countries, is taking broad and fast action to help developing countries strengthen their pandemic response. It is supporting public health interventions, working to ensure the flow of critical supplies and equipment, and helping the private sector continue to operate and sustain jobs.

The World Bank Group is making available up to $160 billion over a 15-month period ending June 2021 to help more than 100 countries protect the poor and vulnerable, support businesses, and bolster economic recovery. This includes $50 billion of new IDA resources through grants and highly concessional loans and $12 billion for developing countries to finance the purchase and distribution of COVID-19 vaccines.

The writer is the former Bureau Chief of Reuters in Bangladesh and Executive Editor of the American Chambers’ Journal.


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