Economy Watch: IMF Thinks World Economy All Wobbly

The International Monetary Fund, in its latest forecast for global growth, is decidedly more pessimistic than it's been recently.

By Dees Stribling, Contributing Editor

The International Monetary Fund, in its latest forecast for global growth, is decidedly more pessimistic than it’s been recently. Should domestic real estate interests care about that? Yes and no. The world is thoroughly interconnected now, so rumbles in China or a strong dollar or whatever the latest economic shock du jour is does the potential to affect demand for goods and services elsewhere in the world, with ripple effects in all property sectors—if the crisis is bad enough. After all, the Panic of 2008 was primed by the housing crisis in the United States. Property owners and managers in (say) Europe probably didn’t care about it at first. On the other hand, not every distant crisis rises to the level of disrupting otherwise strong local markets.

Even so, the IMF warned this week that the world’s financial system is in its worst shape since 2009. Or as the organization put it, downside risks are more significant now. “Given the distribution of risks to the near-term outlook, global growth is more likely to fall short of expectations than to surprise on the upside,” the 3Q 2015 World Economic Outlook released by the IMF noted on Thursday. Some of the risks that might pitch the world into a slowdown, even the fairly recovered economies of the United States and parts of Europe, include lower oil prices, a too-strong dollar, a sharper-than-expected slowdown in China, and good old-fashioned geopolitical tensions and violence, such as in the Ukraine, the Middle East, or parts of Africa.

In advanced economies, the IMF urges that “accommodative monetary policy” continues to be essential, alongside “macroprudential tools” to contain financial sector risks. The organization came out on record previously as against the Fed raising interest rates in the United States, not so much because borrowing would cost more here—including the borrowing necessary for residential and commercial deals—but because it would spook other, weaker parts of the world economy. The IMF posits that the world’s on a hair trigger, that is. On the fiscal side, countries with room for fiscal stimulus should use it to boost public investment, especially in quality infrastructure, the IMF asserted. The EU nations have been reluctant to do so, since they believe in austerity, and the U.S. Congress is politically FUBAR at the moment, so stimulus is unlikely in either place.

Global real GDP grew at 3.4 percent last year, and the IMF forecasted it to grow at only 3.1 percent this year. A weak world economy, if it stays that way long enough, might have a variety of effects on U.S. real estate. For example, worldwide demand for intellectual-intensive products and services (to cite one, an iPad) would go down, affecting the tech industry’s appetite for office space. A very strong dollar would cut exports, which could affect industrial space demand (though it might be offset by higher imports). Slow growth in emerging economies (especially China) would affect retailers’ ability to expand overseas. Or a sluggish world combined with a strong dollar might cause less investment in U.S. real estate assets—unless a sudden, scary geopolitical event drives more investors here, regardless of currency rates.

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