Commodity Price Slump is Weighing on the Canadian and the Global Economies

The ongoing decline in the US-dollar prices of most internationally traded commodity products has hit the Canadian economy hard, depressing incomes, triggering layoffs and capital spending cutbacks by hundreds of resource companies (and their suppliers), and hurting business and consumer confidence. It’s important to recognize that the commodity carnage isn’t restricted to oil, or to energy products generally. It’s also affecting natural gas, coal, base metals, precious metals, potash, various industrial raw materials, and some segments of the agri-food sector. Lumber prices have also beaten a hasty retreat in recent months.

The World Bank’s latest commodity market update provides a handy summary of the gruesome statistics.

  • In 2015, energy prices plummeted 45% from the previous year’s levels, while non-energy commodity prices were down by 15% (both measured in US dollars).
  • Relative to their peaks in late 2011, the main industrial commodity price indexes tracked by the World Bank have plunged by two-thirds for energy and by more than one-half for metals.
  • Agricultural commodity prices, meanwhile, have dropped by one-third from their 2011 peaks.

The accompanying table reports nominal price indices for the principal commodity groupings, with historical data covering 2012-15 along with the World Bank’s forecasts for 2016-17. For most commodities, prices are expected to bottom in 2016 before staging a very marginal recovery in 2017. Even by 2017, many commodity prices are projected to be significantly lower than they were back in 2012.

Nominal Commodity Price Indices,
World Bank, History and Updated Forecast
(2010=100)
201220132014201520162017
Energy128127118654962
Metals969185676063
Agriculture114106103898889
Precious metals138115101918383
Memo items:
Crude oil (US$/bbl)$105$104$96$51$37$48
Gold (US$/oz)$1,670$1,411$1,265$1,160$1,075$1,066
Natural gas (US$/mmbtu)*$2.79$3.73$4.37$2.61$2.50$3.00
Aluminum (US$/mt)$2,040$1,847$1,867$1,665$1,550$1,612
* by pipeline
Source: World Bank; US Energy Information Administration for natural gas price in 2012.

Faltering economic growth in emerging markets is a key factor dampening commodity demand. In some cases, such as oil and certain base metals, an expansion in global supply is also playing a role. Economic growth projections for the majority of emerging markets have been revised down for the next two years, on the heels of a noticeable deceleration in 2014-15. The World Bank sees a risk that “…a faster-than-expected slowdown in major emerging market economies – especially if combined with financial stress – could further reduce commodity prices, setting back growth in commodity exporters and [also in] the global economy.”[1] Even though many emerging markets – and most advanced economies – would seem to gain from lower-priced energy, metals, and foodstuffs, so far the downturn in commodity prices isn’t proving to be a growth tonic for the global economy.

For Canada, all of this amounts to a rather inauspicious start to 2016. Commodity-based products account for half of the country’s merchandise exports, one of the highest shares among all developed economies. The Bank of Canada recently estimated that the sharp decline in global oil prices is costing our economy $50 billion in lost income per year, equivalent to $1,500 for every Canadian.[2] And that’s just oil. Add in the impact of the broader world-wide commodity price slump, and it’s clear that the economic cost to Canada is considerably greater. While Canadian consumers and some Canadian industries are benefitting from lower prices for energy and other resource products, the overall economy is suffering. And if the World Bank is right, the suffering won’t be ending in the near future.



[1] World Bank, Commodity Markets Outlook, January 2016, p. 8.

[2] “Life After Liftoff,” speech by Bank of Canada Governor Stephen S. Poloz, January 7, 2016.