The precarious outlook for the global economy
Making sense of the latest trends in property and economics from around the globe
4 minutes to read
The inflationary period of the past three years will cast a long shadow.
We are now nearing the midpoint of what was supposed to be a transformative decade for development. Instead, we will have experienced the slowest half decade of GDP growth in 30 years, according to the World Bank's latest outlook.
Granted, conditions are brighter than they were this time last year. Inflation might look beaten as investors debate the timing and extent of rate cuts, but the geopolitical outlook is precarious. Conflict escalation could lead to a surge in energy prices and inflation, and there's still a lot we don't know about the stress now baked into the financial system as a result of higher interest rates. The potential for weaker-than-expected growth in China, further trade fragmentation, and climate change-related disasters might all play a role in the year ahead.
The World Bank now expects growth to slow for the third year in a row—from 2.6% last year to 2.4% in 2024, almost three-quarters of a percentage point below the average of the 2010s. By the end of 2024, people in about one out of every four developing countries and about 40% of low-income countries will still be poorer than they were on the eve of the pandemic in 2019.
Green investment
It's often only when you emerge from the worst of a crisis that the likely knock on effects begin to look clearer.
Developing nations might be emerging battered and weary from four years of 'polycrisis', but tackling other key global development goals - particularly climate change - will now require a surge in investment to the tune of about $2.4 trillion a year, the World Bank says. That seems unlikely. Per capita investment growth in developing economies between 2023 and 2024 is expected to average only 3.7%, just over half the rate of the previous two decades.
The World Bank sees solutions in the form of "investment booms" - it finds that developing economies often reap an economic windfall when they accelerate per capita investment growth to at least 4% and sustain it for six years or more. While some of that relies on sensible government policymaking, a lot hinges on fairly benign financial and geopolitical conditions.
Regardless, these conditions will support investment in strategic sectors such as technology, energy, and defence, which will all offer sizable opportunities for real estate investors. I'll explore this in more depth in the forthcoming Wealth Report 2024.
A little hot
The annual rate of inflation in the US rose a little faster than economists had been expecting last month. The 0.3% increase brings the annual rate up to 3.4%. The less volatile core index rose 0.3%, in-line with expectations.
Separate jobs figures showed no signs of weakening in the labour market. Together, the data led traders to pare back the odds of a rate cut in March to about 65%, from 70% before the release. Futures contracts still have the policy rate below 4% by the end of the year.
Murky data published since the new year has halted falls in mortgage rates, which haven't moved materially in more than three weeks. The 30-year rate sits in the mid-six percent range, "which has marginally increased homebuyer demand", according to FreddieMac.
Indeed, mortgage-purchase applications are now up 3% from a month ago, and Redfin’s Homebuyer Demand Index–a seasonally adjusted measure of requests for tours and other buying services from Redfin’s agents–is up 5% from a month ago.
An improving outlook
Trading updates from Persimmon and Taylor Wimpey hint at the degree to which conditions in the housing market began to improve in the final weeks of 2024.
Persimmon said it managed to sell 9,922 new homes during 2023, ahead of previous guidance, and Q4 was "particularly strong". Average private net sales were 0.58 per outlet per week for the year, down from 0.69 in 2022. However, private net sales rates in the fourth quarter stood at 0.41 per outlet per week (excluding investor deals) compared with 0.28 in Q4 2022.
Taylor Wimpey said it sold 10,848 homes, down from 14,154 in 2022. Its net private reservation rate for 2023 was 0.62 homes per outlet per week, down from 0.68 last year.
"Looking ahead, it is encouraging to see a reduction in mortgage rates, however, in the short term the market remains uncertain and the planning backdrop extremely challenging," said Taylor Wimpey CEO Jennie Daly.
In other news...
From our team - Jennifer Townsend explores the rising importance of social value for life sciences.
Elsewhere - the UK economy is flatlining, for now (ONS), China built more solar panels in 2023 than the rest of the world (Telegraph), and finally, the LA Mansion Tax gets off to a slow start (Bloomberg).