Europe's Spotty Recovery Will Slow U.S. Turnaround
But the Worst is Behind Us, Wells Fargo Economist Tells NAIOP New Jersey Chapter Meeting.
- Newark, NJ (1888PressRelease) July 02, 2010 - The worst of the global recession is over; the turnaround is likely to be slow largely because of Europe's ongoing debt crisis, but U.S. commercial real estate is likely to be more attractive in the months ahead. That was the general message delivered by Wells Fargo Securities Managing Director and Senior Economist Mark Vitner to attendees of NAIOP New Jersey's chapter meeting. The program was titled, "The European Sovereign Debt Crisis and What it Means for the U.S. Economy and Real Estate Markets."
"Following the worst recession in decades, the global economy is on the rebound," Vitner said. "But while the duration was longer than the typical recession, it was similar to others for its impact on manufacturing."
Noting as well that manufacturing in the modern era is more capital-intensive and not as labor-intensive as in the past, he predicted that the U.S. will show a 3.5% GDP increase for the second quarter with more capital flowing into the picture. One possible obstacle, however, is the fact that half of that bounce-back in the U.S. is attributable to inventory growth, and half to the various fiscal stimulus programs, many of which are coming to an end. The latter concern carries over into the international picture as well.
"With the international stimulus programs generally winding down at the same time, the second half of the year could see slower growth," Vitner said. "The stimulus programs have driven a lot of what's going on right now."
Another potential factor in a second-half slowdown: Europe's spotty recovery. "The Euro-zone endured a deep recession, and recovery has been sluggish," he noted. That, of course, presents a mixed bag for the import-export business because, as he explained, with the U.S. growing twice as fast as Europe, this country is now importing more, lifting Europe's exports. The flip side is that Europe, with its ongoing fiscal woes, is importing less. "Weaker exports to Europe could stunt U.S. payroll growth," Vitner explained.
At the same time, he pointed to several European countries that will find it difficult to "grow their way out of their fiscal problems," he said. In particular, countries like Ireland, Greece, Spain and Portugal "need to undertake a sizeable fiscal adjustment to stabilize their debt-to-GDP ratios." Vitner conceded, as well, that to a certain extent the U.S. faces the same problem, "which is not comforting." Another major risk from the sovereign debt crisis is that so much of the banking community is international in scope, which links all of these national crises together so closely.
For commercial real estate, the result has been not a lot of transactions, but those that do occur happen "at very attractive prices," Vitner said. "Commercial real estate represents a downside risk to the U.S. economic outlook. The worst of the decline is over, but the problem persists."
Lower interest rates will be a plus. And with so much risk and higher prices in Europe, "direct investment in U.S. real estate is looking much safer by comparison," Vitner said.
In the final analysis, "growth in global GDP will be negative this year for the first time in decades," he concluded.
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