Cheaper energy may ease global inflation: World Bank's deputy chief economist Ayhan Kose
The World Bank anticipates stronger global growth if trade tensions reduce. Commodity prices may initially drop but could rise higher than expected. Lower oil prices may offset growth headwinds for importers like India. Gold prices are projected to surge significantly in 2025, driven by safe-haven demand and central bank purchases. This marks a decade of annual increases.
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Global growth prospects will strengthen if trade tensions ease in a lasting manner implying a more robust outlook for commodity demand, World Bank's deputy chief economist Ayhan Kose, told ET.Speaking a day after the release of the World Bank's latest report-Commodity Markets Outlook-that forecast global commodity prices could drop to their lowest level of the 2020s, Kose said commodity prices would be expected to turn out higher than the baseline forecasts in the report.Global commodity prices are forecast to fall by 12% in 2025, followed by a further 5% decrease in 2026, according to the report.He said, among large oil importers, lower commodity prices are potentially a partial offset to headwinds to growth that may result from rising trade tensions."Lower oil prices will bolster inflation-adjusted incomes in these economies (all else being equal), and tend to weigh on domestic consumer price inflation," he said, adding that at a global level, energy prices are expected to make a negative contribution to inflation this year, directly lowering global consumer price inflation by about 0.35 percentage points.India is a large importer of crude oil."The main factor driving lower oil prices over the forecast period is slowing global growth, the adverse effects of which are generally likely to outweigh the benefits in oil importers of lower oil prices," he noted.He said the main direction of causality is from lower expectations for global growth to lower commodity prices, because commodity demand will be weaker globally. "Lower commodity prices will significantly curb export and fiscal revenues, which could dampen economic activity," he saidAfter rising 23% in 2024, gold prices are projected to surge 36% in 2025 to a record high of $3,250/oz, before easing slightly in 2026, he said.This would mark 10 consecutive years of annual increases."Strong safe-haven demand for gold is expected to persist in the near term, buoyed by uncertainty, geopolitical tensions, and concerns over volatility in major financial markets," he said, pointing out that central bank gold purchases are also expected to remain robust, reflecting their reserve management strategies and providing additional support to prices.
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Europe's economic growth is now projected to slow, with the World Bank forecasting expansions of 0.7% in 2025, 0.8% in 2026, and 1% in 2027. These figures represent a significant downward revision from January estimates, with the 2025 forecast cut by 0.3 percentage points and the 2026 outlook reduced by 0.4 percentage points. Even as advanced economies face headwinds, emerging markets and developing economies are collectively projected to show more robust, albeit slightly tempered, growth. The World Bank forecasts these nations will expand by 3.8% in both 2025 and 2026, inching up to 3.9% in 2027. Within this group, China's growth is expected to moderate, with projections of 4.5% in 2025, 4% in 2026, and 3.9% in 2027, reflecting a broader trend of maturing economies. "The outlook largely hinges on the evolution of trade policy globally. Growth could turn out to be lower if trade restrictions escalate or if policy uncertainty persists, which could also result in a build-up of financial stress. Other downside risks include weaker-than-expected growth in major economies with adverse global spillovers, worsening conflicts, and extreme weather events," the report said. "On the upside, uncertainty and trade barriers could diminish if major economies reach lasting agreements that address trade tensions," it added.
