A backdrop of uncertainty
Moderator Julie Whelan, head of occupier research for the Americas at CBRE, began the presentation with an outlook suffused with challenge: “Change, progress, opportunity. As we start these are three themes that offer cautious optimism against a backdrop of uncertainty. While the pace of change is accelerated and creating opportunities for the real estate industry, acting on that change can be difficult under the very economic conditions that we’re in,” she began.
Looming recession won’t be severe
Richard Barkham (pictured), global chief economist, head of global research and head of Americas research, provided a macroeconomic view that could keep interest rates higher for the foreseeable future.
“Along with many other forecasts, we see the United States entering a moderate recession in 2023, probably after Q1,” he said. “Domestically, despite some recent good news, the battle with inflation is not yet done. There is still excess demand in the labor market. We’re almost at the peak of the rate cycle, but I think there will be one or two more interest rate rises to take demand out of the economy and reduce the pressure on inflation.”
Global dynamics affect US economy
And yet, economic pressures are not limited to the US, he added: “The international economy is also weak,” he said. “Europe and the UK have inflation and rising interest rates as well, plus elevated energy and food costs due to the war in Ukraine. In Asia, China’s abrupt exit from zero COVID had both good and bad features. The economy of China, which had been heading down very rapidly we think will turn around as it opens up within three or four months. That is good for global demand, but I think it could make the fight against inflation harder in the second half of the year, meaning interest rates will have to stay a little bit longer than people think.”
While recession is forecast, it won’t be overly severe, he noted: “However, what we expect of recession, we don’t think it will be deep,” Barkham said. “We should not see too much entrenchment. Unemployment will rise from around 3.5% to 5%, but it won’t be excessive.”