Issues and Challenges for Commodity Markets in the Global Economy: An Overview

Abstract

By mid-2007, the over-dependence on market forces and mechanisms, without proper and workable regulatory mechanisms and systems in place to govern the globalization process, had led to the appearance of large cracks threatening the stability of the world economy on two fronts: the sharp hike of primary commodity prices and the global financial crisis.¹ After two decades of low, and at times dwindling, prices in the 1980s and 1990s, many primary commodities had registered a steep price increase since 2002, reaching an all time high in the spring and summer of 2008 with extremely high volatility (Figure 3.1). The soaring key commodity prices hit the world economy at a time when most western economies were struggling with efforts to eschew a sharp economic downturn and recession, triggered by the sub-prime mortgage crisis in the USA in the background of global macroeconomic imbalances, and the subsequent credit crunch spreading to major industrial economies through poorly regulated global financial transactions and systems.