Weekly Wrap – Global economy ticks along; India’s farmers’ unrest worrisome

The global economic recovery from the crisis originated by the coronavirus pandemic may take as much as five years, the World Bank’s chief economist Carmen Reinhart said.

“There will probably be a quick rebound as all the restriction measures linked to lockdowns are lifted, but a full recovery will take as much as five years,” Reinhart said in a remote intervention during a conference held in Madrid.

For the first time in 20 years, global poverty rates will rise following the crisis, she added. With the COVID-19 pandemic continuing to threaten jobs, businesses and the health and well-being of millions amid exceptional uncertainty, building confidence will be crucial to ensure that economies recover and adapt, says the OECD’s Interim Economic Outlook.

The Interim Economic Outlook projects global GDP to fall by 4.5 per cent this year, before growing by 5 per cent in 2021.

Agriculture

Meanwhile in India, even while farmers in Punjab and Haryana and western Uttar Pradesh have resorted to agitation against the new ordinances related to the farm sector, the bills were passed in the monsoon session of the Lok Sabha. Niti Aayog Vice Chairman Rajiv Kumar said the legislation to have a “colossal impact” on the future of agriculture in the country.

The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill and the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill were passed by voice vote, even as the Congress, DMK and Revolutionary Socialist Party members staged a walkout and Harsimrat Kaur Badal, Minister of Food Processing Industries resigned from the cabinet in protest.  

Farmers are worried that the bills are a precursor to removing the provision of Minimum Support Prices for cops that the government presently guarantees for the majority of crops. Another bill related to the farm sector, the Essential Commodities (Amendment) Bill, was also passed by the Lok Sabha. These three bills will replace ordinances promulgated by the government earlier.

Metals

Steel prices globally are set to keep rising in coming months as economies recover and demand for steel is gradually picking up after being hit by the coronavirus pandemic.

In China underlying demand remains exceptionally strong. Prices of hot rolled coil steel, used in the manufacturing sector, have shot up by 37% since April in China, the world’s biggest steel market and the first country to recover from the pandemic.

Prices in Europe and the United States have also jumped over the past several weeks.

In India, domestic steel prices have increased by around 8% this year,  including one in July, two in August and another this month in September. Domestic mining industry has slammed the increases as many steel mills secured leases of iron ore mines recently that should have insulated them from global markets.

On the other hand, mills have justified the increase by saying that domestic steel prices were lower than global rates even after recent price increases. India has also seen a surprisingly robust off-take for its steel from China, despite the boycott-China rhetoric, and other Southeast Asian countries like Vietnam.

Gold

Gold prices in India closed the week at Rs 54,980 per 10 gm, while silver was trending at Rs 69,000 per kg. Meanwhile, India’s gems and jewellery exports rose by 29.18 per cent to Rs 13,160 crore in August. The total shipments in July stood at Rs 10,187 crore. 

India’s gold imports for the month of August also more than doubled ahead of the start of the festive season. Inbound shipments climbed to 35.5 tonnes in August from 14.8 tonnes a year earlier. Imports were also higher than July’s 25.5 tonnes.

However gold’s meteoric rise to record high prices and a nationwide lockdown to check the pandemic have dampened the domestic jewellery demand. Sales volumes of gold jewellery retailers are expected to fall by 35%-40% in 2020, which will be the steepest drop in a decade, according to ratings agency CRISIL.

Overall revenue is expected to drop an average 20-25% this fiscal year.

Globally, investments in gold-backed ETFs and similar products recorded their ninth consecutive month of inflows in August 2020, albeit at their slowest pace for 2020. Collectively, gold ETFs, added 39 tonnes during the month, equivalent to $ 2.1 billion of assets under management (AUM) as the price of gold reached a record high of  $ 2,067 early in August.

Energy

Oil rebounded above $40 a barrel at the end of the week after EIA data showed a drawdown in oil storage and Hurricane Sally forced offshore platforms offline. Additionally, OPEC and its allies, led by Russia, pressed for better compliance with oil output cuts against the backdrop of falling crude prices as uncertainty reigns over the global economic outlook.

The panel of major producers, including Saudi Arabia and Russia, are likely to ask Iraq, Nigeria and the United Arab Emirates to cut more barrels to compensate for overproduction and possibly extend the compensation period.

In India, diesel sales still have to reach pre-Covid levels while petrol sales are rapidly turning to normalcy as more people prefer private vehicles to commute. Coal-based thermal power generating plants have also reported increasing their output as industries start operating with increasing capacity. 

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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