Severe Geoeconomic fragmentation could lead to turmoil in commodity markets, causing large price swings, particularly minerals critical for the green transition and some highly traded agricultural goods, said the International Monetary Fund (IMF) in its latest world economic outlook.
While long-term global economic losses of about 0.3 per cent would remain relatively modest due to offsetting effects in net-producing and consuming countries, low-income and other vulnerable countries would bear the brunt. They could face long-term gross domestic product losses of 1.2 per cent on average, largely stemming from disruptions in agricultural imports.
For some countries, losses could exceed 2 per cent. This would exacerbate food security concerns, as low-income countries are particularly reliant on food imports to feed their population.
The report further said that these adverse effects are partly due to highly concentrated commodity production, largely a consequence of regional advantages in natural resource endowments. The three largest suppliers of minerals, for example, account for about 70 per cent of global mined production on average. Scaling up mining and processing capacity can take years, resulting in slow responses to price signals.
"Urgent efforts are required to ensure the unhindered flow of food and minimize the threat of food insecurity in low-income countries, especially given the increasing frequency and intensity of weather events and natural disasters," said the IMF report.
Similarly, multilateral efforts should prioritise establishing a “green corridor,” consisting of a minimal agreement to maintain the flow of critical minerals. This would help avert climate change.