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Solid euro area growth supports favourable backdrop for commercial property

Amidst the drama of recent political events, it is perhaps unsurprising that the strengthening of the euro area’s economic recovery has partly slipped under the radar. But, having lagged most advanced economies significantly throughout much of the post-financial crisis era, growth does appear to have gathered solid momentum over the last two years according to the RICS Global Commercial Property Monitor.

14 September 2017

The positive tone to the economic data has been accompanied by a smart improvement in confidence across the commercial real estate sector, a point evidenced through the findings of the report, which is downloadable on the right of this page. Since 2015, European markets have consistently returned some of the most positive results worldwide, leading the way on both occupier and investment sentiment.

Notwithstanding this, the recovery across the single currency area still has plenty of catching up to do. For one, the overall size of the economy is only 3% larger than it was in 2008. Although, on the same basis, this is broadly similar to Japan, it is significantly below 14% expansion in Canada, 12% in the US, and 8% in the UK. In addition, the rate of unemployment has only fallen below 10% during the last 12 months, compared to a pre-crisis rate of 7.3%.

Meanwhile, unemployment remains significantly higher in some member states (18% in Spain and 23% in Greece), with youth unemployment still a major concern in some parts. By way of contrast, the rate of unemployment across the three largest G7 economies — excluding euro area nations — is sub 5% and below that found in 2008.

Nevertheless, recent improvements appear to be built on increasingly stable foundations, boding well for growth over the next two years. What’s more, survey data points to an acceleration in near term economic growth, which is already running above trend. At present, the ECB remains committed to conducting €60bn worth of bond purchases per month until December 2017 at the earliest. Given the recent upswing however, debate surrounding the appropriate course for monetary policy thereafter is becoming more finely balanced.

Macroeconomic overview

Economic developments across the Eurozone have, by and large, surprised to the upside over the past two years. This has brought welcome news to an economy hit by a double dip recession during a troublesome period between 2008 and 2014 in which GDP contracted in twelve separate quarters.

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