EM economies ex-China are slowing to a “new, normal growth” phase, which will keep bulks and base metals under pressure this year and next. These economies join China in a broad-based EM slow-down, which will increase the supply-side slack in metals generally, and stretch out supply and inventories globally.
Private and public spending is ratcheting lower in EM ex-China markets. Real capital expenditures dipped into negative territory year-on-year as 2014H2 opened, while real private consumption decelerated to ~ 3% y-o-y.
Slowing EM Spending And Capex Will Pressure Industrial Commodities
Coupled with China’s “new, normal growth,” which we discussed last week, this provides another indication commodity price pressure will remain contained for the balance of this year and next. In addition, it raises the odds of a eurozone recession, to which the IMF last week assigned a 40% probability. This would hit commodity prices harder than markets expected earlier this year: EM growthwill no longer offset DM slack.