I spent the most interesting part of my day chairing a session presenting some excellent research led by David Rees, our Head of Research in Australia, in conjunction with the World Economic Forum and supported by many of our researchers around the world. The subject is asset price dynamics – a smart way of saying real estate cycles and particularly real estate bubbles.
My job was to present the research to the group and then lead a discussion session. The panel consisted of a number of industry executives from around the world, and, notably, two central bank governors and two economics prize winners. As you can imagine, that was a daunting task!
Bottom line, the research document is impressive, and it earned universal approval for its conclusions and recommendations. You may find it particularly interesting to review the 15 case studies on real estate bubbles through the years and around the world. It’s gripping reading.
We’ll be carrying on that work with David. We’ve also developed a summary of the research and issued a news release on the subject. You can use these materials to put together sessions for your clients. Our research teams will help you with that business development work.
Switching to some conclusions I got from the conversations I’ve had and sessions I was able to attend, the most important aspect concerns how the world economy feels today.
There are no issues in the U.S. The economy is robust, growing strongly and will be a motor for the world economy for the next two to three years.
In Europe, drawing largely from a session I attended today, attempts by the European Central Bank to pump liquidity into the region’s economies through quantitative easing are helpful but not sufficient to drive growth. There is a growing consensus that growth in Europe will only come through structural reform, particularly in the Southern European economies. Nobody doubts that, but clearly it will be politically hard to achieve. Structural reform is coming, however, and the sense is that, for the rest of this cycle, Europe will continue to grow slowly. But it is growth.
In Asia, India is clearly accelerating, China is slowing to a stable growth rate, and the rest of the region is working around that dynamic, with Australia following the China logic and Japan apparently responding quite well to Abenomics.
Put it all together, and what does it tell us? Well, if you go back 12 months to the time we were last in Davos, the world hadn’t heard of the Ukraine crisis, Ebola, ISIS or $50 oil. So all of those events, which could have been disruptive, have happened in the last year. Looking forward now, there are plenty of things you could worry about, including those four, as well as issues we don’t yet know about.
But in broad terms, the general sense here – and my sense too – is that there is no impediment to solid global growth across the world economy. And the world economy will continue to build on the existing momentum, for at least the coming two years.
In addition to the fragile growth that has been built in this recovery, the recent oil dividend from the drop in oil prices is putting real spending money into the hands of the people who can make a difference, the world’s consumers. As that begins to seep through the system, it will help to drive further growth and build further confidence.
On the subject of confidence, that is clearly the order of the day among business people in Davos. The confidence is not exuberant, but it’s solid, and it’s as good as I’ve witnessed here since 2005.
We’ve been able to get appointments with clients and prospects easily. And with existing clients, we’ve had opportunities, and indeed – from the U.S., to India, to Korea – solid deals pushed across the table to us during the brief half-hour sessions which are the norm here. I can’t remember when opportunities and deal outlines were being offered with such spontaneity by our business partners.
All of that is very positive and encouraging, and suggests that our operating environment will be very strong and positive for the coming 12 months and beyond.
As I’ve said, we have one more day of work here on Saturday. I head to Frankfurt for meetings next week.
Thank you for following the contributions from me and my colleagues in Davos. We wish you all an excellent local business and market environment wherever you’re operating this year.