Global Context: How to operate in a world where uncertainty has become the only certainty

POLITICAL AND ECONOMICPOLITICAL AND ECONOMIC

32

INTROINTRO

• GLOBAL SLOWDOWN LIKELY TO CONTINUE BUT CHANCES OF A RECESSION IN 2020 REMAIN LOW

• THE ONGOING WAR FOR TALENT WILL BE AN ECONOMIC HURDLE TO OVERCOME IN 2020 AND BEYOND

• ECONOMICS AND POLITICS WILL BECOME INCREASINGLY INTERTWINED

The global economic slowdown has been well documented in 2019, and the UN’s trade and development body, UNCTAD is one of many voices warning of a recession in 2020. It’s worth noting, that any potential recession in 2020 or beyond would likely not be to the extremes seen during the GFC. Oxford Economics predicts global real GDP growth will ease in early-2020 but is unlikely to see any sizeable change. Indeed, consensus forecasts indicate the likely of a recession in 2020 remain low.

At the start of the previous decade, global trade was growing at almost 8% per year, almost double the rate of growth in real GDP. In 2019, however, the World Trade Organization (WTO) expects trade to grow by just 2.6%, in line with GDP. Whilst the recent eruption in protectionism has undoubtedly accelerated the slowdown, other industry-related cyclical effects are also at play. The U.S. National

Association of Business Economists believe the #1 risk to the U.S. expansion is the trade war. The IMF estimates that one-third of the deceleration in global trade activity is attributable to the auto sector—which has been largely immune in the U.S.-Sino trade dispute thus far. And up until as recently as 2015, growth in services trade had been outperforming goods trade considerably, and had to an extent been masking the overall trade slowdown.

Clearly, a slowing growth backdrop is not the only potential threat on the horizon. The ongoing war for talent will continue to be an economic challenge for companies from all sectors, with Gartner putting talent shortage as the top emerging risk faced by businesses worldwide.1 In the US more cities have an unemployment rate below 4% since before 1990 (when the data began to be captured).

We are living in a world where change has become the new normal, and the real estate market is no exception. Heading into 2020, the pace of change could well accelerate, with both risk and reward on offer. We predict that there will be three main challenges for 2020:

1 Gartner: Emerging Risks Survey, available here: https://www.gartner.com/en/newsroom/press-releases/2019-01-17-gartner-survey-shows-global-talent-shortage-is-now-the-top-emerging-risk-facing-organizations

Outlook 2020 Political and Economic

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Country GDP (2020f)

Forecast relative to 20y history (1 = Highest, 7 = Lowest)

Unemployment rate,(2020f)

Unemployment Trajectory relative to 2019 Q3

Austria 1.0 6 4.5

Belgium 1.2 5 5.8

Bulgaria 3.0 5 4.8

Croatia 2.1 5 6.2

Czech Republic 1.9 6 2.2

Denmark 1.2 5 5.2

Estonia 2.7 6 5.3

Finland 1.0 5 6.6

France 1.2 4 8.3

Georgia 4.3 6 10.2

Germany 0.7 5 3.1

Greece 2.0 3 15.9

Hungary 3.1 5 3.8

Ireland 2.7 5 4.9

Italy 0.3 5 10.0

Latvia 3.0 5 6.2

Lithuania 2.5 6 6.1

Country GDP (2020f)

Forecast relative to 20y history (1 = Highest, 7 = Lowest)

Unemployment rate,(2020f)

Unemployment Trajectory relative to 2019 Q3

Luxembourg 2.8 5 5.3

Montenegro 2.5 6 11.1

Netherlands 1.2 6 3.5

Nigeria 2.3 6 23.6

Norway 1.9 4 3.3

Poland 3.2 5 2.8

Portugal 1.4 4 6.3

Romania 2.5 6 4.1

Russia 1.6 6 4.6

Saudi Arabia 1.8 5 6.4

Slovak Republic 2.4 6 5.3

Slovenia 2.8 4 3.6

South Africa 0.9 6 29.6

Spain 1.6 5 12.8

Sweden 1.2 6 7.4

Switzerland 1.4 5 2.3

Turkey 2.8 6 12.4

United Arab Emirates 2.2 6 2.9

United Kingdom 1.1 7 3.8

GDP AND UNEMPLOYMENT FORECASTS

Source: Oxford Economics

Outlook 2020 Political and Economic

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Looking beyond the economy, the global political landscape has shifted in the last decade, with signs of more to come in 2020. Years of wealth inequality and stagnating wages have contributed to a rise in populism, catalysed by the increase in information transfer permitted by social media platforms. The growing chasm between the ‘haves’ and the ‘have-nots’ exacerbates the issue, with political power swinging increasingly to the extremes.

This political polarisation has come with several consequences, most notably an increase in civil unrest and protesting taking place across the world in Hong Kong, France, Spain, Lebanon, UK, U.S. and throughout Latin America. In 2020 there will be several significant elections including the U.S. presidential election, the United Nations Security Council election, the Polish presidential election – not to mention the potential fallout from the UK general election scheduled for 12th December 2019.

GLOBAL SLOWDOWN/ TRADE WAR

POLICY MISTAKES

INDUSTRY 4.0

POLITICAL RISK

TECH BUBBLE

AUTO SECTOR

RETAIL SECTOR

CENTRAL BANKS

DOMESTIC EG CHINA

CREDIT CURBS

BREXIT

RISING NATIONALISM/

POPULISM

JAPANIFICATION

These global economic, political and societal trends will undoubtedly have an impact on real estate, either directly or indirectly. Ongoing political and economic uncertainty could well cause investors to become more risk-averse in the near-term, whilst over a longer horizon, societal and demographic changes will further shape the way we work, shop and play.

FIGURE 1 - RISKS IN REAL ESTATE

Source: C&W Research & Insight

The bigger the bubble the bigger the risk

Outlook 2020 Political and Economic

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01/

01/

1987

500

450

400

350

300

250

200

150

100

50

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1988

01/

05/

1989

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07/

199

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199

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9

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2016

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2018

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3

01/

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2010

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2017

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09/

2019

Source: https://www.policyuncertainty.com/europe_monthly.html

EUROPEAN ECONOMIC POLICY UNCERTAINTY

Outlook 2020 Political and Economic

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Austria

2008 55

2013 46

2017 35

372012

272015

282015

Greece

6

9 3

3

8 3

2010

2014

2018

Hungary

72007

3

3

82011

3102016

Ireland

9 2

13 3

13 4

2008

2013

2018

Italy

10 4

11 3

13 4

2010

2012

2017

Netherlands

7 3

38

9 4

2009

2013

2017

Norway

5 2

5 3

6 2

2009

2011

2015

Portugal

352007

32011

26

6

2015

Poland

34

4 3

26

2008

2011

2016

Romania

13

10

9

2010

2013

2

4

42017

Spain

8

8

8

2

3

3

2010

2014

2018

Sweden

12

11

12

4

4

4

2007

2011

2015

Switzerland

12

11 3

2

29

2010

2015

2017

United Kingdom

11 6

12 3

13 3

2007

2010

2014

Belgium

552010

7 42013

9 42017

Czech Republic

8 5

8 3

9 3

2007

2011

2015

Denmark

9 4

9 4

10 5

2011

2015

2019

Finland

12 2

14 3

16 4

2007

2012

2017

France

6 5

5 2

7 4

2009

2013

2017

Germany

POLITICAL FRAGMENTATION IN EUROPE

The EMEA region has not been immune to the political instability that has been pervasive in the last decade, with recent election results in several European countries

suggesting the political landscape is fragmenting. Government coalitions will become more heterogeneous, which will result in more convoluted policymaking.

General election results over roughly the past decade show that the political landscape in most of Europe’s 20 largest economies is more fragmented, either because the number of parties in parliament has increased or the distribution of seats is more balanced.

Parties in parliament

RESULTS OF THE PAST THREE LEGISLATIVE ELECTION IN EUROPE’S 20 LARGEST ECONOMIES:

Parties receiving more than 10% of the vote

NOTES: France’s data includes results for the first round of National Assembly elections. Denmark’s data excludes Greenland and the Faroe Islands. Romania’s data excludes seats assigned to ethnic minorities.

Source: Stratfor 2019

Outlook 2020 Political and Economic

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Outlook 2020 was researched and written by the Cushman & Wakefield Research & Insight team members from across EMEA.

Cushman & Wakefield (C&W) is known the world-over as an industry knowledge leader. Through the delivery of timely, accurate, high-quality research reports on the leading trends, markets around the world and business issues of the day, we aim to assist our clients in making property decisions that meet their objectives and enhance their competitive position.

In addition to producing regular reports such as global rankings and local quarterly updates available on a regular basis, C&W also provides customized studies to meet specific information needs of owners, occupiers and investors.

C&W is the world’s largest privately-held commercial real estate services firm. Founded in 1917, it has 230 offices in 60 countries and more than 13,000 employees. The firm represents a diverse customer base ranging from small businesses to Fortune 500 companies. It offers a complete range of services within five primary disciplines: Transaction Services, including tenant and landlord representation in office, industrial and retail real estate; Capital Markets, including property sales, investment management, investment banking, debt and equity financing; Client Solutions, including integrated real estate strategies for large corporations and property owners, Consulting Services, including business and real estate consulting; and Valuation & Advisory, including appraisals, highest and best use analysis, dispute resolution and litigation support, along with specialized expertise in various industry sectors. A recognized leader in global real estate research, the firm publishes a broad array of proprietary reports available on its online Knowledge Center at: www.cushmanwakefield.com

This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material. The information on which this report is based has been obtained from sources we believe to be reliable, but we have not independently verified such information and we do not guarantee that the information is accurate or complete. Published by Corporate Communications.

©2019 Cushman & Wakefield, Inc. All rights reserved.

Andrew PhippsHead of EMEA Research & InsightCushman & Wakefield, LLP125 Old Broad Street, London, EC2N 1AR, UK Tel:v+44 (0) 20 3296 4236 andrew.phipps@cushwake.comcushmanwakefield.com

Copyright © 2019 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.