IMF’s Downward Trajectory
- Jul 10, 2015
The number-crunchers at the International Monetary Fund have generated the organization’s latest estimates for economic for the entire world — the aptly named World Economic Outlook — as well as large parts of it, and while the outlooks aren’t exactly bad, they certainly aren’t as good as only three months ago (the report comes out quarterly). No part of the world seems to be growing as fast as it should, not even the tiger economies of East Asia, and certainly not the vexed and troubled euro-zone nations. Even the United States got a downward revision, though all things considered, the American economy is still doing better than most, and definitely better than it was during the years after the recession.
The IMF is now predicting that global growth will be 3.3 percent in 2015, marginally lower than in 2014 (when it was 3.4 percent), with a gradual pickup in advanced economies and a slowdown in emerging markets and developing economies. A setback to activity in Q1 2015, mostly in North America, caused the IMF to revise its 2015 forecast down from the last report, in April, when it was 3.5 percent. Still, the underlying drivers for a gradual acceleration in economic activity in advanced economies—easy financial conditions, more neutral fiscal policy in the euro area, lower fuel prices, and improving confidence and labor market conditions—remain intact. Thus in 2016, worldwide growth is expected to strengthen to 3.8 percent.
The organization believes the U.S. economy will grow by 2.5 percent, rather than 3.1 percent, as it previously predicted. Still, the IMF characterized the U.S. setback as “temporary,” saying the economy remains poised for an acceleration of consumption and investment, just as soon as wages rise and employers hire workers. In emerging market economies — mainly China — the continued growth slowdown reflects several factors, including lower commodity prices and tighter external financial conditions, structural bottlenecks, rebalancing in China, and economic distress related to geopolitical factors. Geopolitics distress, after all, tends to make investors and employers nervous.
Should U.S. commercial real estate interests care about global growth or growth in China (for example)? Or the euro zone crisis? Most demand for real estate is locally generated, so in that sense, no. But the world’s economy is a web of interconnected influences, so that one major part affects all the others — positively or negatively. A slowdown in exports from China, for instance, is going to affect logistics volume on the West Coast, but concurrent growth in U.S. manufacturing will benefit some kinds of industrial space. A geopolitical dust-up that drives energy prices up suddenly (such as in Venezuela) is going to increase operating costs for most properties, but benefit oil state markets (such as Houston). Malaise in Europe might keeps Europeans at home, not supporting hotels and restaurants in the U.S., but it also might kick investment in U.S. real estate up a notch by euro-denominated investors worried about the future of their zone.