2015 - a better year ahead?

Markets opened 2015 cautiously optimistic, but what should we expect going forward? 

10th February 2015

2015 - A better year ahead?

Continue to the other two articles in this edition of the Global Outlook...

London office market - is there still value in the sector?

The London office market enjoyed another strong performance in 2014, remaining one of the world's leading global investment markets.  But where are we now in the London office cycle?
Click here to read more

Sweden - what's keeping inflation low?

Inflation in Sweden has been low since 2013.  What's driving it and what does this mean for investors? 
Click here to read more
 

The global economy remains difficult to read.  Financial markets continue to show mixed signals; while equity and bond markets have both strengthened, largely due to anticipation of large-scale ECB asset purchases, the VIX index (a measure of market uncertainty) is still hovering near last year’s elevated levels.  On balance, we remain cautiously optimistic about the outlook for the world economy.  The best available evidence still points to a gradual normalisation in the global economy, although the pace of recovery remains moderate.  We expect world real GDP growth to improve to around 3.0% p.a. in 2015, up from 2.7% p.a. in 2014, which is in line with the pre-crisis trend growth (Chart) and sufficient to continue to generate employment.

Currently momentum in the global economy remains highly dependent on the strength of the US.  More than any other major economy, the US has unwound much of its high household debt burden and is starting to regain its former vigour.  February’s robust non-farm payroll figures reflect a recovery in job growth, wages, and labour force participation.  If this continues, it seems likely that the Fed will begin raising interest rates around mid-2015, although the pace of this monetary unwinding is likely to be slow and measured.

World real GDP growth

The UK is following a similar path as the US, although it now looks like UK interest rates may not see their first increase until 2016.  But outside of the US and the UK, the recovery still looks challenging, which is fomenting sense of unease among investors.

Growth in Europe stalled again in the latter half of 2014 and confidence remains fragile.  Notwithstanding Europe’s penchant to underwhelm, there are a number of reasons to think that 2015 will be a better year for the euro zone: sustained low oil prices; ECB quantitative easing; a weaker euro; declining headwinds from fiscal austerity.  The main wildcard for Europe is the future of Greece.  For now, the bond market is signalling that investors see recent political upheaval as a distinctly Greek, rather than peripheral European, phenomenon but this could change if a Greek default or Grexit materialises.

In Asia, concerns are mounting about whether Chinese and Japanese policymakers can sustain domestic growth.  China, which has been the key engine for global growth over the past decade, looks to expand around 7% in 2015, although uncertainty around that estimate is uncomfortably high.   Japan, meanwhile, is flagging and awaits Abenomics’ promised structural reforms to boost medium-term growth prospects.

Barring some keys risks, chiefly instability in the euro zone and China’s teetering, 2015 looks to be a year where growth will be strong enough to push along the recovery and shrink output gaps, but not sufficient to prompt tighter global monetary policy – yet.  This moderate but uneven recovery in the global economy remains a positive environment for global property markets.  For now, prime property yields are expected to remain low given the continued low level of interest rates and the increasing volume of property transactions - particularly in the most liquid global gateway cities - supporting values in the medium term. 
 

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