Uncertainty over global growth prospects
Making sense of the latest trends in property and economics from around the globe.
4 minutes to read
Growth slows
A pretty gloomy outlook from the IMF includes downgrades to its growth forecasts for 2022 and 2023. It now expects global growth to slow to 3.2% this year and 2.9% next year, downgrades of 0.4 and 0.7 percentage points from its April forecast: Key passage:
"Higher-than-expected inflation, especially in the United States and major European economies, is triggering a tightening of global financial conditions. China’s slowdown has been worse than anticipated amid COVID-19 outbreaks and lockdowns, and there have been further negative spillovers from the war in Ukraine. As a result, global output contracted in the second quarter of this year."
Despite slowing activity, the group revised up its outlook for inflation this year, which it now expects to hit 6.6% in advanced economies and 9.5% in emerging and developing economies. The resulting synchronized monetary tightening across many of the world's major economies "is historically unprecedented", the group says, and the effects are expected to bite, slowing both growth and inflation next year.
What next?
There is a high degree of consensus among economists as to what many central banks are going to do over the short term. The Fed will almost certainly raise interest rates by 0.75% when it publishes the results of its latest meeting today. Meanwhile the Bank of England is highly likely to opt for another hike on August 4th, though there is some ambiguity over whether that will be by 0.25% or 0.5%.
There is a growing sense of uncertainty as to whether policymakers will begin slowing the pace of tightening from that point onwards, particularly when it comes to the Fed. Today's hike will bring the interest rates to neutral, the economy is showing various signs of slowing and inflation appears to have peaked in a few key areas already.
Likewise, the number of economic signals pointing to further economic stagnation in the UK grows by the day. Sentiment among employers, retailers and consumers are all heading towards or at historic lows and we've had a number of signals suggesting the rate of inflation will soon decelerate. The public's expectations for future inflation are coming off the boil according to various surveys, and manufacturers are reporting that some inflationary pressures are showing signs of easing.
Russia turns the taps
Still, the IMF urges central banks to stay the course: "Inflation at current levels represents a clear risk for current and future macroeconomic stability and bringing it back to central bank targets should be the top priority for policymakers," the group says.
Risks to its outlook are "overwhelmingly" tilted to the downside, particularly if the war in Ukraine leads to a sudden drop off or a halt to European gas flows from Russia. Right on cue, the price of gas hit levels not seen since March in Britain yesterday as Russia curtailed supplies to Europe.
The real world effects of all this are stark. LEG Immobilien, one of Germany's largest residential landlords, told the Handelsblatt newspaper that it wants the option of restricting heat supply to its tenants this winter. Europe's residential landlords purchase energy on behalf of tenants in advance.
Industrial demand
Industrial take up in London and the south east hit 7.1 million square feet in the first half of the year, up 67% on last year and 43% higher than the five year average - see our latest research here.
Retail, e-commerce and distributors continue to take the lion's share, at 67%, however data centre operators, film studio operators and advanced manufacturing firms are becoming increasingly prominent. Sky, Netflix and Apple TV have all signed leases for units currently under construction, ranging from 80,000 sq ft to 200,000 sq ft - see Friday's note for more on that.
There remains a shortage of larger scale warehouses of at least 250,000 sq ft. Approximately 6.7 million sq ft of space was under construction speculatively across 32 developments at the close of Q2, but 84% of those are under 250,000 sq ft.
US buyers in Europe
Tasked with compiling our annual Prime France Report, Kate Everett Allen sat down with our sales team back in May to understand what key trends they were observing. Our seven-strong team all cited one trend: the rise in US enquiries.
Fast forward two months and more colleagues across Europe are referencing the same trend. The stalwarts of Paris, Venice and Tuscany are attracting a higher volume of US interest but so too are Mallorca, Sardinia and the South of France.
The currency play is the biggest factor. The euro and the dollar reached parity on 13 July for the first time since 2002. A US buyer currently enjoys a 16% discount when buying in any of the 19 Eurozone member countries compared to July 2021 based on the shift in the exchange rate alone.
In other news...
Ample liquidity is failing to stimulate demand in China (Bloomberg).