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Commodity Commotion

Terms of trade is the price of a country’s exports relative to its imports. The commodity terms of trade refers to a country’s commodity exports relative to its commodity imports.

When the price of commodities, like oil, plummeted in 2015, economies that rely on exporting commodities had their terms of trade drop by an average of about 10 percent of GDP that year. Economies that rely more on importing commodities saw about a 2 percent of GDP benefit from the 2015 drop in prices. 


The decline in commodity prices may finally be leveling off, and instead of the spring 2016 World Economic Outlook projections of another 2 percent decrease in the terms of trade for commodity-exporting countries in 2016, the decline on average is estimated to have been closer to ½ percent of GDP. Although this is good news for those economies, it doesn’t do much to help recuperate the losses suffered in 2015.

The flip side is that the gains reaped by commodity-importing economies in 2015 are now looking to be short lived. The IMF estimates the benefit to these economies to have increased by less than ¼ percent in 2016: less than half the projected ½ percent anticipated in the spring 2016 World Economic Outlook projections.