Executive Summary
As of Q3 2023, global supply chains have largely recovered from the shocks experienced by the onset of the Russia-Ukraine war and, though commodity prices overall exceed pre-pandemic levels, many markets have now seen power return to the buyer side.
Energy prices, which spiked last year amidst natural gas supply disruptions, particularly in Europe, have significantly come down from their peaks, despite seeing a slight uptick in recent months. In logistics, lower fuel costs and a stronger supply capacity position outpacing lowered consumer demand mean freight rates have seen dramatic declines. The first half of this year also saw food commodity prices and supply shortages ease significantly compared to 2022 highs.
However, the forces that hindered growth over the last year persist, and global markets remain vulnerable to volatility, with various upside and downside risks:
- Geopolitical tensions between Russia and Ukraine could intensify and impact trade routes, as well as further raise food and energy prices. The recent suspension of the Black Sea Grain Initiative, which previously allowed ships to safely export grain, foodstuffs, and fertiliser from Ukrainian ports, is a key concern.
- Persistent macroeconomic headwinds and lower global demand than expected, particularly given China’s underwhelming recovery. Stubborn inflation and successive interest rates hikes in Europe and US have also weakened consumption in the context of diminished consumer confidence – and resulted in reduced manufacturing activity. With demand for consumer goods down, logistics pressures have eased, along with prices for key input goods such as metals. However, any demand-side boost from unexpectedly high stimulus would again see these categories impacted.
- Climate change giving rise to increasingly unpredictable and extreme weather. El Niño is causing unprecedented high temperatures and droughts across Europe over the summer and is likely to bring a colder, harsher winter, which would see natural gas supplies and electricity prices pressured again. Extreme weather has also impacted crops and has the potential to increase food commodity prices, which have begun to rise again in recent months.
