Fears of a gloomy economic future are being fueled by a worldwide commodities slump.

According to market observers who spoke with CNBC, the prices of commodities like crude oil and iron ore have been declining this year, highlighting the ongoing global economic crisis and the threats of a recession.

The S&P GSCI Commodities index, a benchmark that gauges the overall performance of major commodity markets, shows that the price of global commodities has fallen by more than 25% over the past 12 months.

Industrial metals have decreased by 3.79% of the various commodity baskets over that time (up to June 30), while energy commodities like oil and gas have decreased by 23%. Contrarily, agricultural products including maize, wheat, and sugar have increased by around 11%.

However, economists claim that the index's overall decline—which comes as China's Covid-19 comeback loses steam—is likely signalling a worldwide economic downturn and a recession.

Moreover, in the fourth quarter of this year or the first quarter of 2024, the U.S. is expected to see a GDP decline, and Europe shall follow suit in a matter of months, according to Kpler's Senior Commodity Analyst Reid I'Anson.

Following years of rigorous lockdowns, China has begun reporting a torrent of economic data that has lagged below market forecasts, suggesting a shaky Covid reopening. Analysts at Bank of America concur that China's recovery has been less robust than anticipated.

Wall Street banks expect that China's real estate downturn will persist for years. I'Anson said that it doesn't appear that the Chinese government would undertake a vigorous fiscal stimulus package. If it does, though, "it would need to be sizable to impress markets at this point."

Iron ore and oil are among the top losers in the commodities downturn, according to the researchers. Kpler also mentioned the unfavourable outlook for copper, which is used in a variety of products including industrial machinery and electrical equipment and serves as a proxy for the economy's pulse.

A mild winter and low energy demand in Europe have caused gas storage in the EU to reach five-year high levels, which has lowered prices.

Commodities often follow fluctuations in inflation, so if inflation keeps falling, commodity markets may see a further short-term decline.

The International Monetary Fund predicts a decline in global headline inflation from 8.7% in 2022 to 7% in 2023.

(Sources: cnbc.com)