Global Growth and Commodity Prices

Submitted by Share Trading on 30 April, 2008 - 11:48

Australian markets analyst have provided an update on "Global Growth and Commodity Prices".

Global Growth and Commodity Prices

Resource stocks have continued to outperform the market this year throughout the uncertainty of recent events. This performance has been as a result of the ever increasing price for commodities. In today’s note, Macquarie Research Equities (MRE) investigates how a slowdown in global growth may affect commodity prices and if the current prices are sustainable.

The OECD growth numbers clearly show that there has been slowdown in economic growth with current figures highlighting negative growth of -0.9%. This is an improvement in the previous period of -1.4%. When including the emerging economies if Brazil, Russia, India, China, Indonesia and South Africa the growth figures are a more reassuring +1.8%. This reiterates the importance of these emerging economies to supplement demand while the more industrialised economies show poor growth figures.

Historically, there have been two distinct relationships between global growth and commodity prices. The first is the outcome on commodity prices when U.S growth slows without strong growth from an emerging market, the other is when there is an emerging market to achieve sustained demand for commodities. MRE highlight distinct periods where this relationship is obvious. These are the recessions in the U.S in 1981, 1990 and 2001 were commodity prices were negatively affected by the slowdown compared to the recessions in 1969 and 1974 where growth from Japan ensured that commodity prices were sustained and in fact increased.

MRE believes that the current environment, with Chinas insatiable appetite from growth, is very similar to the historical events where Japans growth supplemented the turndown in the U.S. For this reason, MRE believe that current commodity prices are sustainable