On Tuesday, research and consultancy group Wood Mackenzie said it was lowering its 2022 global growth forecast to 2.5%. Furthermore, its outlook now sees the global economy expanding by only 0.7% due to the long-term impact of the war in Ukraine.
Despite soaring commodity prices in Q1 2022, Wood Mackenzie noted that lower economic growth would not bode well for future gains. According to research director Peter Martin, rising commodity prices had pushed inflation prices higher, thus forcing central banks worldwide to tighten their monetary policies and pushing the threat of a recession even closer.
WoodMac also noted that that sharp rises in energy and food prices hurt industry demand and erode consumer purchasing power. At the same time, global business confidence is deteriorating and investment is contracting.
"Energy and commodity prices could fall as the global economic downturn takes hold and the EU and US recessions bottom out after four to six quarters, when consumption hits its nadir. The lag in reaching the bottom of the economic cycle sees the global economy take a bigger hit, relative to the base case, in 2023 compared to 2022," Martin said in the firm's report.
The outlook followed the release of US CPI data for March. Annual inflation increased by 8.5% in March, slightly exceeding economist expectations.
Although broad commodities prices could suffer in a recession, many commodity analysts have noted that gold could do well in an environment of high inflation and low economic growth. Following the release of the US inflation data, gold prices are trading near a 4-week high.
If geopolitical tensions persist longer than anticipated, both Russia and Ukraine could face sharp economic declines. Peter Martin noted that these countries account for less than 2% of total global GDP. However, the war will have a much larger impact on international trade, he added. Although WoodMac's research director said he doesn't see the end of globalization, a realignment in regional trade was likely.
