The commodity market has been on a tear this year.
At the start of the year, the price of a barrel of oil rose by over 2 per cent, with crude prices reaching $US50 a barrel by the end of February.
Inflation is also on the rise.
In March, the Australian dollar rose by 1.3 per cent against the US dollar, with gold surging as well.
And Australia’s gross domestic product is expected to be the weakest in a decade.
But a lot of people are still looking for ways to make ends meet, particularly in the mining and construction sectors, which are still experiencing significant supply shortages.
What if the market were to crash?
There are a number of reasons why this could happen.
In particular, there is the possibility that the global financial crisis will force the global economic recovery to stall.
The International Monetary Fund has warned that the risk of a global financial meltdown has grown from 1 per cent in 2013 to nearly 5 per cent now, a rate that is “almost twice the level seen during the last global recession.”
The IMF has warned of a potential “structural shift” in the global economy that could force governments to abandon monetary policy and seek a more flexible and less rigid stance on monetary policy, such as the “quantitative easing” of the past.
In addition, there are concerns that the financial crisis may have forced governments to implement policies such as capital controls and asset sales to mitigate the risks of a “fiscal cliff”.
“The most likely scenario is that the market will experience a prolonged period of low commodity prices and a gradual recovery in the economy,” the IMF said in a note published last week.
In other words, a recession is not imminent.
But some economists have suggested that this is not necessarily the case, pointing to the fact that the world’s economies have not been in recession since 2009, and that the current slump in commodity prices is not linked to the financial crash.
The IMF predicts that the next downturn in the commodities market will be triggered by a combination of the financial collapse and the structural shift.
According to the IMF, the next economic downturn will occur if governments and markets do not take corrective actions to mitigate this structural shift in the world economy.
“The next downturn will be a period of slow but steady deterioration of the global demand for commodity products, which will be followed by a period when demand for commodities will recover,” the Fund said.
What is a commodity?
According to one of the central banks, the value of a commodity is the amount of money it costs to produce it, the amount it takes to buy it, and the amount that goes to the buyer.
This definition does not apply to the Australian economy.
It is the value that the economy would have to produce to keep up with demand in the markets, and therefore the value it would need to sell to buy that same goods.
The price of an Australian commodity is often referred to as the cost of production, and is therefore a measure of the price that people would have had to pay to buy and sell the same commodity.
According the Bureau of Statistics, the average cost of producing a barrel is $US55.
That is an amount that is about one-third higher than the cost to produce the same amount of oil in the US.
The value of the dollar has also fallen as a result of the economic crisis, which has led to the dollar being worth about two per cent less than it was at the start.
It’s important to remember that the cost per barrel of a product is determined by the demand for the commodity, not the supply.
And the price is determined entirely by supply and demand.
If the world is looking for a more sustainable supply and a more competitive price for its products, then a decline in the cost-per-barrel of oil will make a lot more sense than the rise in the price for commodities.
It will be interesting to see if this is the case.
But in the meantime, we’re going to have to keep on working and find ways to sustain our current lifestyles.
The author is a PhD student in the Economics Department at Griffith University.