jfid – Fragmentation of the global commodity markets has become a pressing issue in recent years. In its October 2023 report, the IMF highlighted market fragmentation as one of the threats to food security and the clean energy transition. Here is a detailed analysis of how the fragmentation of commodity markets affects the global economy:
The global commodity markets have split into two major blocs supporting either Russia or Ukraine. This fragmentation is primarily due to the ongoing Russia-Ukraine war, which has led many countries to restrict the trade of commodities, particularly food and minerals, resulting in soaring prices. If not addressed promptly, this fragmentation could threaten food security and hinder the clean energy transition.
Impact on Indonesia’s Economy
As an ASEAN country, Indonesia is also affected by the fragmentation of commodity markets. The IMF has noted that this fragmentation can reduce the income and exports of ASEAN countries. Indonesia needs to be prepared for this scenario. Although Indonesia’s economic growth remains robust amidst global economic dynamics, global challenges such as persistent high inflation rates, rising interest rates, the intensification of the Ukraine war, geoeconomic fragmentation, debt distress, and financial sector volatility create significant challenges for the domestic economy and financial sector.
Economic Policy Analysis
Fiscal policy is also directed at accelerating the implementation of structural reform agendas, particularly through enhancing human resource quality, accelerating infrastructure development, and improving institutional and regulatory quality. The global economic developments in early 2024 show an improving trend, albeit still overshadowed by high risks and uncertainties. While global inflation has shown a moderating trend, it has not yet reached target levels in many advanced economies, keeping global interest rates high.
Consequences for Supply Chains
Supply chains are also affected by the fragmentation of commodity markets. “Supply chains and fragmentation are related to markets, investment flows, and technological cooperation,” an expert stated. The fragmentation of commodity markets can cause disruptions in supply chains, affecting the availability and stable prices of commodities.
Conclusion
The fragmentation of global commodity markets has significant impacts on the global economy. Its effects can be seen in food security, the clean energy transition, the income and exports of ASEAN countries, including Indonesia. Indonesia must be prepared for these conditions and take anticipatory steps to maintain economic recovery and protect its population. Fiscal policy and other economic policies must be directed at accelerating the implementation of structural reform agendas and addressing the risks of global economic slowdown.
