IMF warns China at risk if commodity markets see further fragmentation
- Commodities uniquely vulnerable to shifts in geopolitics, and China, as major importer and consumer, would be hit hard, organisation states
- Hypothetical scenario, in which US and Europe lead trade bloc opposed to China and Russia, raises prices for products China requires most
With the global commodity market becoming more fragmented since the outbreak of the Ukraine war, China may suffer more than the West if the trend further intensifies, the International Monetary Fund has warned.
Geopolitics-driven breakdowns in food, energy and mineral supplies could lead to more price volatility, threaten food security and make the clean energy transition more costly, the IMF said on Tuesday.
“Commodity markets are an important channel through which geopolitical fragmentation can affect the economy,” the organisation said in a portion of its coming World Economic Outlook.
Commodities’ highly concentrated and difficult-to-relocate production, hard-to-substitute consumption and critical role as inputs for manufacturing and technologies underpin their vulnerability in the event of fragmentation, the report concluded.
“While most commodity prices have since normalised, geopolitical tensions signal that more severe fragmentation of commodity trade is a major risk,” the report said.
Many countries are ramping up efforts to reshore commodity supply chains for national security and geopolitical reasons, including those for critical minerals for clean energy technologies, semiconductors and defence, it added.
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