Real estate, alternative real assets and other diversions

Global Economic Outlook: Positives Still Outweigh the Negatives

The Economist

Just as geopolitical headwinds eased in late January with a phase-one U.S./China trade deal and the U.K. formally leaving the European Union, worries about the Chinese coronavirus outbreak surged and the growing optimism on global growth dampened. 

On the positive side, low inflation allowed the U.S. Federal Reserve and the European Central Bank to cut interest rates and provide monetary stimulus in 2019. This is still rippling through the global economy and boosting growth.

In the U.S., consumers are confident and the manufacturing downturn has eased, but overall growth is being held back by relatively low levels of business investment, largely due to lingering trade uncertainty. A rebound in capex may not occur until after the U.S. presidential election in November. CBRE forecasts U.S. GDP growth of around 2% in 2020, enough to generate moderate employment gains. 

Despite a recent drop in core CPI inflation, real interest rates in the U.S. remain negative (Figure 1). This is good for real estate, although it is perplexing in a broader economic context. The Fed has put a hold on further policy rate reductions but has room to cut further if needed. Open-market operations have resumed. Fiscal policy will be neutral for growth in 2020 as the impact of earlier tax cuts eases. Further tax cuts are likely in 2021 if President Trump is reelected.

Figure 1: The U.S. Real Interest Rate Remains Negative

Source: Bureau of Labor Statistics, Federal Reserve, CBRE Research, January 2020.

Manufacturing activity has stabilized in the U.S., including auto production that had declined for four years. Housing construction and sales are picking up with low mortgage rates and accelerating wage growth (Figure 2).

Figure 2: Housing and Auto Activities Pick Up

Source: Census Bureau, BEA, Macrobond, CBRE Research, January 2020.

Europe continues to fend off recession risks. Growth slowed further in the Euro Area during the fourth quarter of 2019, attributed to strikes in France and political volatility in Italy. Nevertheless, business confidence has been largely restored in the manufacturing sector (Figure 3) as Germany stabilizes with rising manufacturing PMI and strong domestic demand. Based on healthy consumer confidence and employment, Germany’s real GDP growth is expected to exceed 1% in 2020. As some Brexit uncertainty lifts, the U.K. also can expect modest economic recovery in the next few quarters, but full-year growth likely will remain slow as the U.K. and EU work to hash out the terms of their future trade relationship. 

Another potential upside lies in pro-growth fiscal policies in Europe, including Germany, where the budget is now in balance. Increased government spending will highly benefit the private sector.

Figure 3: Euro Area Markit Business Confidence Index






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About Richard Barkham

Richard Barkham

Richard is a specialist in macro and real estate economics. He joined CBRE in 2014 as Executive Director and Global Chief Economist. Prior to taking up his position with CBRE Richard was a Director of Research for the Grosvenor Group an international business with circa $10bn of capital under management in real estate. He was also a non-Executive Director of Grosvenor Fund Management where he was involved in fund strategy, risk analysis and capital raising. Richard is the author of two books and numerous academic and industry papers. In 2012 he published Real Estate and Globalisation (Wiley Blackwell, Oxford), which explains the impact on real estate markets of the rise of emerging markets such as China and Brazil. He has extensive consulting experience and is a Visiting Professor in the Department of Construction and Project Management at the Bartlett School, University College London. He holds a PhD in economics from the University of Reading where he taught, in the Departments of Economics and Land Management, between the years of 1987 and 1998.​​​

Articles by Richard Barkham

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