Doubtful economic recoveries in China, US and Europe subdue outlook for commodity prices UNCERTAINTY about economic recoveries in the US and Europe as well as concerns China is heading for a slower growth path have lead to a subdued outlook for commodity prices this year. Analysts are divided about the strength of the global economic recovery, some having significant doubts while others, such as Morgan Stanley, are more bullish. The Australian dollar also remains, as Morningstar analysts put it "stubbornly high." Morgan Stanley has a positive outlook for commodities and suspects they could even outperform. "Commodities have underperformed, first on fundamentals, then on macro concerns and risk-aversion," the broker says in its most recent Commodity Manual. Our analysis suggests many of these issues are transitory and don't diminish the efficacy of commodity investing. If sentiment and fundamentals improve, as we expect in second half 2013, commodities could see notable performance from here. Our economists expect global GDP growth to accelerate in (the second half), reaching as high as 3.9 per cent by 4Q13. With the highest growth since 2010, commodities could even outperform. The broker is keen on copper, which is leveraged to growth in areas such as housing in China. "The outlook for the copper market continues to improve, primarily led by a larger than previously forecast turnaround in demand from China, and the basing effects of a very large refined market deficit in calendar year 2012," Morgan Stanley says. Outside of China, our forecasts for US construction and auto manufacturing are also supportive of stronger off-take, and even in Europe our economic forecasts suggest a moderate rebound in second half 20H13 is possible. Baker Young Stockbrokers managed portfolio analyst Toby Grimm was less confident of the global outlook, and said the outlook for commodity prices was subdued. "After a period of much better than expected economic growth in US between July 2012 and February 2013, the data has turned decidedly disappointing," he said. While not the primary driver of raw materials usage, the US is the world's largest economy and highly influential on global activity. We have also seen a sizeable pick-up in Chinese growth around the turn of the year fade. European economic activity continues to on the whole come in worse than feared. What commodity process need near term is a new stimulus action form China and it certainly appears as though the new leadership are not considering it. Since the transition (which also included the rotation of the head of the People's Bank of China) senior officials have remarked about the repositioning of China's economy - away from export driven model towards a more sustainable domestic demand driven one (which is arguably far less commodity intensive). Morningstar analysts agreed, saying the short-term outlook was "uncertain and . . . likely to be volatile." Longer-term global commodity consumption should be robust but we don't expect anything like the China-fuelled consumption growth rates of the past decade. . . All commodities will benefit from China's consumption, but the rate of growth will slow, particularly for iron ore and coking coal, these being early-cycle beneficiaries in developing economies.