Africa: Gains from commodity price moves to flame out – CE
|With the exception of gold prices, nearly all other commodities prices of relevance to African producers are up this year. Nonetheless, Virag Forizs, Emerging Markets Economist at Capital Economics, thinks that most of the gains from the terms of trade improvements are behind us. In the coming quarters, net commodity exports are likely to worsen in most countries – turning a tailwind into a headwind.
African economies have benefitted from the rally in commodity prices
“We think that the recent upswing in commodity prices will run out of steam in the coming months. Oil prices will only edge a bit higher before dropping back to $70pb by year-end and falling further to $60pb by end-2022. Some agricultural product prices like coffee will probably follow a similar trend, although we think that cocoa prices could keep rising into 2022. Industrial metals prices are likely to record the largest falls in prices by the end of 2021 and into next year.”
“Most African economies’ terms of trade are likely to worsen from here. This year’s gains for oil producers like Nigeria and Angola are likely to be reversed in 2022. Zambia’s fortunes will also turn around sharply as copper prices fall. A similar, albeit more moderate, shift is likely in South Africa. The risk of renewed balance of payments strains is highest in Zambia and Angola.”
“Commodity prices turning from a tailwind into a headwind in the coming quarters is another reason to expect weak recoveries across Sub-Saharan Africa. Slow vaccine rollouts, tight fiscal policy and continued weakness in tourism sectors will hold back economic activity across the region.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.