Global GDP Forecast Projected to Worsen But Will Hit Bottom Soon

Global gross domestic product amid the COVID-19 pandemic will be worse than expected from a previous analysis, but the bottom is near, according to Fitch Ratings’ latest Global Economic Outlook report.

The firm’s economics team revised its April forecast predicting 2020 will see an overall GDP decline of 3.9% down to 4.6%. The lowered figure results from new analysis of GDP in Europe, the United Kingdom and emerging markets, but not China, said Fitch Ratings chief economist Brian Coulton in an announcement accompanying the report.

Elsewhere in the world, GDP growth numbers for China (0.7%), the US (-5.6%) and Japan (-5.0%) remained unchanged from the April forecast, as did Fitch’s forecasts for Australia, Korea and South Africa.

Other signs of economic activity appear to be stabilizing, Fitch said, indicating “the collapse in global economic activity may be close to bottoming out.” Those measures include consumer visits to retail and recreation venues, signs of economic growth, industrial production, fixed asset investment and credit growth.

Though the bottom may be near, climbing out of it “is likely to be a slow and bumpy process” for the global economy, Fitch said.

“The rupture in the labor market—with US unemployment now expected to peak at 20% in May—and ongoing social distancing will weigh heavily on consumer spending post-crisis, while firms will be very cautious on capital spending,” the report announcement said.

Despite the ding to GDP, commercial real estate likely won’t suffer as much as other sectors, according to William Maher, director of Americas strategy and research at LaSalle Investment Management. Maher, writing in an article published in Urban Land, the magazine of the Urban Land Institute, said the pandemic’s impact on overall market conditions and values for real estate won’t be as bad as during the Great Recession, which had strong connections to residential real estate and finance.

However, Maher wrote, retail and hotel properties this time around likely will face a more severe impacts from the pandemic-caused economic downturn. (Brick-and-mortar retail businesses and lodging businesses have suffered mightily as a result of stay-home and social distancing orders brought on as part of the coronavirus response.)

“A bounce back is expected in 2021 and 2022, with forecast GDP growth of 3.9% and 3.6%, respectively, both well above the long-term average of 2.1%,” Maher wrote.

In a growing economy, commercial real estate prices climb along with GDP, according to a report from asset manager Asia Green Real Estate. Growth fuels demand for more property and sends investors hunting.

“Be it from a homeowner, tenants, or investor perspective, GDP is arguably the main driver behind both residential and commercial real estate markets,” the Asia Green report said.