In March we hosted our bi-annual Client Forum, sharing our views on the outlook across sectors with a strong focus on the future of office. We kicked off the day with a global economic outlook.
We have revised our view of the global economy and the U.S. outlook is now improved, up from 4.6 to 6.7% GDP growth, however we revised our outlook for Europe down. The outlook represents pre-existing economic momentum, progress in controlling the virus, and economic stimulus.
Forces acting on the global economy include the economic stimulus, which has accounted for about 20% of GDP around the world. The $1.9 trillion U.S. stimulus – which adds to the previous stimulus former President Trump signed – stands out among other countries.
Besides the U.S. stimulus, China is driving growth in the global economy. China is experiencing about 18% year-over-year GDP growth, due to strong economic activity and its strength of export.
The third factor acting on the state of the global economy is progress on COVID-19 vaccinations. Emergence from lockdown is key to recovery. The U.K. and U.S. are leading the way in vaccine administration, but the European rate is cause for concern. Herd immunity in the U.S. is not far away and could occur this summer.
Propelling the economy are retail sales growth and the fact that monetary policy remains super loose. The spread of risks is wide at the moment. For example, a rise in long-term interest rates, most noticeable in the U.S., has implications for commercial real estate. Inflation could become an issue, but we believe there is too much spare capacity in the global economy to see a meaningful surge in inflation. Keep in mind the U.S. has 18 million spare workers, which act as a reserve army of labor and play a role in suppressing wage growth. The service sector pricing remains weak, but we expect it to pick up quickly. This leads to the verdict: not much inflation.
Other risks to the economy include a new variant virus, US/China relations, stock market correction of 10-15%, and the U.S. trade deficit which would cause the dollar to weaken.