Economy Watch: World Economy Cools, Bodes Ill for U.S. CRE

The world economy might seem a little distant, but it does affect the U.S. economy and thus the demand for most kinds of commercial real estate, albeit indirectly.

The world economy might seem a little distant, but it does affect the U.S. economy and thus the demand for most kinds of commercial real estate, albeit indirectly. The world has been jittery lately, and Oxford Economics, a UK-based independent international forecasting consultancy, has produced its latest monthly forecasts, which try to qualify some of the difficulties.

For instance, Oxford’s February baseline forecast for world GDP growth in 2016 was cut to 2.3 percent in February, the slowest pace since 2009, down from a forecast of 2.6 percent in January. The forecast downgrades several key world economies, reflecting a weak end to 2015 and unfavorable financial market developments over recent weeks.

The Eurozone growth forecast has been cut to 1.6 percent from 1.8 percent, while Japanese growth is expected to be 0.8 percent instead of 1.2 percent. Emerging market growth at 3.5 percent this year will be little changed from the weak reading seen in 2015, with deep recessions persisting in Brazil and Russia, according to Oxford. The company now predicts U.S. growth in 2016 to be just 2 percent, down from 2.4 percent in its January prediction.

The financial market sell-off since the start of the year has been severe, with steep drops in stock markets, slumping commodities and widening credit spreads. One possible impact of all that could be positive for U.S. CRE, as investors turn away from equities markets. Another possible impact of the current climate, Oxford posited, is pressure on policymakers keep interest rates low; a few places are even employing negative interest rates, such as Japan and Sweden did in the last month.