MOST major emerging-market (EM) commodity exporters will run budget and current account surpluses by posting strong increases in the US-dollar value of gross domestic product (GDP) in 2022 despite a generally challenging economic and credit environment.
However, commodity prices are significantly off their 2022 peaks, signalling a more difficult outlook, according to Fitch Ratings in a non-rating action commentary.
“The importance of commodities and their prices to some EM countries is such that they are net beneficiaries of the global economic backdrop despite slowing global growth, rising inflation and interest rates, and a strong US dollar,” the international rating agency pointed out in its latest report.
The median EM for which commodities make up at least 75% of merchandise exports will run a current account surplus of 5.2% of GDP in 2022, according to Fitch Ratings’ forecasts compared with a deficit of 4.3% for EMs where commodities are less than 50% of goods exports.
“That group of major commodity exporters will see median growth in the US-dollar value of GDP in 2022 of 16.6% compared with 6.6% for minor commodity exporters,” projected the rating agency. “Strong gains in the US-dollar value of GDP mean rising living standards and serve to lower debt/GDP.”
Fitch Ratings forecasts a median budget surplus of 1.3% of GDP this year for the major EM commodity exporters compared with a median budget deficit of 5% of GDP for minor commodity exporters.
“The windfall of higher revenues provides greater capacity for governments in major commodity exporters to ease the ‘cost of living crisis’ and help to head off social pressures,” opined the rating agency.
“However, commodity prices are significantly off their 2022 peaks across oil and most metals and food as the markets have grown more concerned about a potential recession, signalling a more difficult outlook for commodity exporters.”
Fitch Ratings forecasts the Brent crude oil price to average US$85/barrel in 2023, down from an average of US$105/barrel in 2022. Partly as a result, exchange rates of many commodity exporters have depreciated markedly in recent months after holding up well against a strong greenback in early 2022. – July 22, 2022
