The Growth Gap Widens – October 23, 2023
If you haven’t already subscribed to Ryan Severino’s newsletter, I recommend you do so. The veteran real estate economist, now with BGO as its chief economist, offers a perspective that is both clear-eyed and far-seeing.
A case in point is his latest posting, “Five Thoughts on the Global Economic Outlook for 4Q 2023.” He notes that the global economy is slowing and is expected to continue decelerating but gives the edge to developing economies.
“To no small extent, resilience in the U.S. economy supported global economic growth” during the first half of 2023, writes Severino. “But generally, the developed economies of the world are lagging emerging economies.”
Further, Severino notes that although Japan was a bright spot in H1 2023, it’s expected to join the U.S., UK and Eurozone in continuing to slow as 2023 segues into 2024. Meanwhile, “major emerging economies such as China, India, and Brazil should all drive global economic growth over the balance of 2023,” Severino writes.
That isn’t to say that these economies won’t see a slowdown in the coming year, but it will be less pronounced by comparison to what we’re likely to see in developed economies. In fact, the gap between developed and emerging economies is likely to widen in 2024, writes Severino.
What’s behind this divergence? Two factors. “First, major economy central banks will likely keep interest rates higher for longer periods to ensure that inflation returns to target in a relatively quick manner,” he writes. “That will more greatly restrain the economic activity of developed economies since they typically operate with much lower interest rates than their emerging-market peers.
“Second, fiscal stimulus has become somewhat less accommodative relative to the spending that occurred during the pandemic, including indirect impacts like excess savings which have already become exhausted in several countries. Thankfully, global growth prospects look brighter in the latter half of 2024 into 2025 as central banks seem likely to begin cutting rates by that time.”
Severino also zeroes in on the commercial real estate implications of monetary policy. For that, though, you’ll just have to subscribe to his newsletter.