Unprecedented but not Unpredictable: Effects of the COVID-19 Crisis on Commodity-Dependent Countries

The global spread of COVID-19 represents a massive challenge for developing countries. Beyond the health crisis and the sudden stop of domestic economic activities, many countries face turmoil linked to commodity dependence. Commodity prices have reacted strongly to the crisis, reflecting changes in supply and demand due to policy measures to limit contagion. Commodity-dependent developing countries are therefore confronted with an unprecedented combination of shocks. However, the crisis has also exposed structural vulnerabilities of these countries linked above all to commodity price dynamics. In the context of a longstanding debate on commodities and development, we portray recent commodity price developments and underlying drivers and discuss implications for commodity-dependent countries, including the risks of depressed export earnings and of changing global production patterns in the long run. Responses to the crisis have to include measures to stabilize commodity prices as well as strategies for economic diversification.