Rodrigo Rato, a former International Monetary Fund managing director, comments on commodity prices and the European sovereign-debt crisis. He spoke at the Diggers & Dealers mining conference in Kalgoorlie, Australia, today.
On commodity prices:
“Many analysts are attributing the speed and extent of recent commodity price falls to the negative sentiment around the European debt issue, concerns among investors that the weaker data emerging from China may be signaling a hard landing and a stronger U.S. dollar. However if the green shoots of recovery in China take place, a mild recovery in prices is likely.
‘‘The weak market sentiment contrasts with the strong figures from Chinese commodity imports, which have been on the upside.’’
While ‘‘Chinese commodity consumers seem to be still cautious about their business, most expect an improvement during the second half, supported by an increase in government infrastructure spending. However, a subdued demand outlook is expected for metallurgical coal, since it is very exposed to mature economies, mainly Europe and Japan, which account for 44 percent of total seaborne imports.’’
On the European crisis and U.S. growth:
‘‘The instruments and reaction of the euro area authorities have been disorganized.’’
‘‘Fiscal austerity for the debtors, increasingly cutting them from the markets but without a clear lender of last resort, as the ECB is not able and, up to now, not willing to play that role.
‘‘The euro area is to this day the biggest source of uncertainty to the world economy’’ and has ‘‘clear destabilizing effects for the world economy.’’
‘‘Growth potential in Europe and the United States has been reduced because of the financial crisis and that’s one of the reasons why monetary policy alone cannot bring up or sustain growth in Europe and the U.S. More things have to be addressed, fiscal policy and very importantly, structural reforms in Europe.’’
European Central Bank President Mario Draghi ‘‘has been very clear that he will do whatever is necessary, and being said by somebody who is experienced in his capacity, Mr. Draghi, I think it’s very important.’’