Economy Watch: IMF Chimes in on Weaker Economy
- Apr 17, 2015
Ahead of the spring meetings of the International Monetary Fund and World Bank in Washington this weekend (and we have to say, it’s a nice time to be in DC), the IMF released its World Economic Outlook and the Global Financial Stability Report. Together, the reports purport to characterize in monograph form something as vast and multi-layed as the world economy, and they probably do as good a job of it as can reasonably be expected. The Outlook in particular paints a picture of the momentum of the world economy and its major constituent parts, especially the United States, East Asia and Europe. And while (except for the U.S.), that might seem a little removed from the concerns of domestic commercial real estate, the world economy is interconnected enough that seemingly remote events can impact the industry.
The Outlook, like many other reports this spring, isn’t exactly glum, but it’s certainly more sober than only a few months ago. The IMF’s US growth forecast for 2015 has been cut from 3.6 percent to 3.1 percent. Not bad, but not quite the growth that inspires more demand for goods and services, more hiring and higher wages — the golden cycle of growth — all of which is good for every real estate sector. Even so, the report also noted that lower oil prices are supporting domestic demand, and so is “continued support from an accommodative monetary policy stance” (cheap money), despite the anticipated gradual rise in interest rates and some drag on net exports from recent dollar appreciation.
Growth in the eurozone, which has been bad for so long, will be less bad this year, the organization predicts: 1.5 percent, instead of the 1.2 percent it forecast six months ago. The lower price of energy’s going to help those economies grow too, but there are also some wild cards in the zone who actions could ripple across the world. The exit of Greece from the euro zone comes to mind, to cite the main example. Oddly enough, that eventuality might actually benefit parts of the U.S. real estate. Should the disruption of the zone cause enough uncertainty among investors, one of the assets they’ll turn to is American commercial and residential real estate. Call it the “Miami effect.”
Only 10 years ago, the Miami real estate market was in bad shape, especially condos, which had been overbuilt badly. The late 2000s recession, of course, didn’t help matters, but as soon as the weakish recovery kicked in, a strange thing started to happen. The Miami for-sale residential market recovered more quickly than expected, and even kicked into high gear, as condo towers started being developed once more. Then the commercial market gained momentum as well. One of the factors in the heightened recovery has been overseas investors, including Latin Americans but also Europeans and others, many of whom are looking somewhere more stable (and with better returns) to park there money. It’s still going on: condo sales in Miami are still growing, and office and industrial markets are healthier than they’ve been in years, part because of overseas investment. Foreign money isn’t the only reason — that would simplify matters too much — but it’s been an important one.