Is the global economy suddenly taking off? It might seem that way given the sudden rise of several metals prices, particularly those of copper, aluminium, tin and zinc. But that is probably a mis-reading of the data. On the other hand, the price of a barrel of Brent crude oil has slipped recently, suggesting that its recent advance had more to do with a rising geopolitical risk premium following the disturbing military salvos between Iran and Israel, rather than a resurgence of global growth (see the chart below).
Source: Yardeni Research
We recently wrote about the IMF’s economic projections, which could be summarised as follows:
The baseline forecast is for the world economy to continue growing at 3.2% during 2024 and 2025, at the same pace as in 2023. A slight acceleration for advanced economies—where growth is expected to rise from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025—will be offset by a modest slowdown in emerging market and developing economies from 4.3% in 2023 to 4.2% in both 2024 and 2025. The forecast for global growth five years from now—at 3.1%—is at its lowest in decades. The global economy has been surprisingly resilient, despite significant central bank interest rate hikes to restore price stability.
While it appears that the overall global economy is still only “muddling along”, rather than booming, the effects on metals and oil seem to be diverging. While demand for oil is within expectations and certainly not booming, supply (particularly from the US) has kept a firm cap on prices.
The story with metals is rather different. The so-called “green transition” is creating more demand for selective metals, and supply has been slow to respond. Indeed, with many layers of government and environmental regulations to be dealt with, and the long time lag between approvals and mining production – often measured in years if not decades – plus the shortage of capital expenditure during the last 10 years, it would not surprise us if metal prices rise significantly further.
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