By Paul Hannon
Commodity prices are set to fall sharply this year and next as rising tariffs lead to a slowdown in the global economy, easing inflationary pressures but hitting many poor countries hard, the World Bank said Tuesday.
In a report, the bank said the anticipated declines in prices will cap the most volatile period since the 1970s, with the years since 2020 characterized by rises and falls in commodity prices that have been shorter and sharper than common over most of the last half century.
The outlook for the global economy has darkened since U.S. President Trump began to impose tariffs on imports from a wide range of countries. Most economists have lowered their forecasts for this year, and the World Bank said that if the global economy grows by the 2.3% consensus projection, commodity prices will likely fall by 12%, with a further decline of 5% in 2026.
In January, before the rise in U.S. tariffs was announced, the World Bank forecast economic growth of 2.7% this year, a performance that would have been unchanged from 2024.
Some of the largest falls are expected in energy prices, which are seen dropping by 17% this year and 6% in 2026. The World Bank said that was due to a combination of weaker demand due to softer economic growth and an expected increase in supply, with Brent crude oil set to average $64 a barrel, down $17 from last year, with a further decline to $60 next year.
It expects oil supply to increase by 1.2 million barrels a day this year, with Brazil, Canada and Guyana expected to increase production a little more than members of the Organization of the Petroleum Exporting Countries.
By contrast, it sees prices of natural gas rising this year, although that largely reflects a spike in the first three months of the year.
"Risks to the commodity price projections are tilted to the downside," the World Bank said. "A sharper-than-expected slowdown in global growth--driven by worsening trade relations or a prolonged tightening of financial conditions--could further depress commodity demand, especially for industrial products."
The World Bank estimates that the projected decline in commodity prices could lower the global inflation rate by 0.35 percentage points this year, a development that could give central banks room to lower borrowing costs to partially offset the slowdown in growth.
In a speech earlier Tuesday, European Central Bank board member Piero Cipollone cited falling commodity prices as one reason to believe that higher tariffs "may even prove disinflationary for the euro area."
However, sharp falls in prices will further weaken growth in the many poor countries that rely on commodities to drive export revenues and employment.
"We're now seeing the highest price volatility in more than 50 years," said Indermit Gill, the World Bank's chief economist. "The combination of high price volatility and low prices spells trouble."
Prices of metals and minerals are expected to fall by 10% this year and 3% in 2026, although tin and nickel will likely be exceptions to that broad trend. Food prices are seen declining by 7% this year, and 1% in 2026.
The World Bank warned that with tensions between large economies mounting, commodity prices may be affected by restrictions to exports as well as higher tariffs on imports, while climate change could also reduce the availability of some.
"Geopolitical tensions could flare, putting upward pressure on prices, especially if commodity supplies are disrupted," it said. "Extreme weather events could cause price spikes in a range of agricultural and energy commodities."
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
April 29, 2025 09:44 ET (13:44 GMT)
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