Drought in U.S. pushing up world food prices

Source: International Grains Council - World market prices for selected agriculture commodities

The latest World Economic Situation and Prospects monthly briefing is now available outlining overall global economic trends. The briefing concludes that drought in large parts of the United States has pushed up world food prices putting pressure on the cost of living and food security. Emerging markets have eased monetary policy to stimulate growth and the eurozone debt crisis remains a major source of uncertainty in global markets.

The August issue of the World Economic Situation and Prospects (WESP) demonstrates a number of concerning trends. Uncertainty and tension in the financial markets has remained through July and early August sparked by the recapitalization of Spanish banks through European “rescue funds”. The funds are being channeled through the Spanish Government and thus have exacerbated sovereign debt concerns. In the mist of Hungarian talks with the IMF, economies of the new EU member states are being affected by weak external demand.

July saw the easing of monetary policy in Brazil, China, Colombia, the Philippines, the Republic of Korea, South Africa and the Taiwan Province of China; with authorities cutting their benchmark interest rates in response to slowing domestic growth and heightened uncertainty over the global outlook. For food prices, the severe drought affecting much of the United States is having a damaging impact on crops. The United States Agricultural Department (USDA) has downgraded its forecast for maize output by 12 per cent. WESP also concludes that North America had been growing well below its potential; the latest data showing that GDP in the United States grew by 1.5 per cent in the second quarter of 2012.

However in some good news, whilst Latin America and the Caribbean have seen industrial production decline, natural resources have actually attracted capital from abroad. Additionally, inflation had moderated in Africa and Egypt’s tourism industry is showing signs of recovery.

The World Economic Situation and Prospects (WESP) is a joint product of the Department of Economic and Social Affairs, the United Nations Conference on Trade and Development and the five United Nations regional commissions. It provides an overview of recent global economic performance and short-term prospects for the world economy and of some key global economic policy and development issues.

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