In a recent webinar called ‘Decoding Macroeconomics for Smart Commodity Price Predictions’, Tom Bundgaard, Expana’s VP Price Forecasting, provided an overview of how global economic trends, including a global economic slowdown and potential recession, influence commodity prices.
While the global economy’s performance is typically tracked through GDP, Bundgaard emphasized the value of the monthly Purchasing Managers’ Index (PMI), which tracks industrial activity, as a better leading indicator. “GDP is a very slow number that comes out every quarter,” he said. “PMI gives us a few months of lead time.”
Bundgaard pointed to three phases in his forecast: a slowdown phase in the economy starting in 2021, followed by a sideways phase in 2023 and 2024. This could continue into early 2025, but then some indicators point to a possible recession in 2025.
“If we forecast a sideways phase, which is a slight improvement […] what’s going to happen is prices are going to go up in the same manner,” Bundgaard said. “That’s why it’s so critically important to understand the macroeconomy from your end when you’re sitting in your company,”
“Just because we got phases one and two right doesn’t necessarily mean we’ll get phase three right. It’s still a question mark.” Bundgaard explained. “All the models point to a recession starting in 2025 with a high degree of likelihood, but it’s not proven yet.”
However, Bundgaard pointed out that regional PMIs, including those for the US, EU, and China, all show weak trends.
If a recession does happen commodity prices are likely to fall. Therefore, PMI can be a good indicator of overall market prices. And it makes “a lot of sense because when the economy goes down, commodity prices will go down that relationship is so strong and you can see it all the time,” although they do not necessarily peak at the same time, he said.
Bundgaard also provided advice for businesses navigating this uncertain economic landscape. He recommended avoiding long-term hedging or fixed-price contracts, as a potential economic downturn could create cost-saving opportunities. “If you’re looking to buy, don’t do hedging […] very long into the future, because this decline could give you some cost benefits,” he said.
The webinar recording can be accessed on this link.
Written by
Thess Mostoles
