Recession talk looms large in CBRE mid-year outlook

Low consumer confidence, deteriorating business confidence and inflation have combined to exert industry challenges. Yet at the same time, Whelan observed, consumers are still spending while US job growth continues to outpace the supply of workers. Despite some strong economic areas, Barkham said he believes recession – or at minimum a “very serious slowdown” – is likely on the horizon.

“It’s important to note, despite all the volatility that you’ve mentioned, we are not there yet,” he said. “But I think the pressure on the consumer and on business from rising energy prices, high food prices and, most importantly, rising interest rates, is going to see demand ebbing away by Q4 of this year and into the first half of 2023. We’ve had some slowdown in the United States, but there is more to come over the next 12 months or so. So, I think we’re headed for recession.”

How severe of a recession? “Well, I don’t want to sugar-coat the message, but I think there are factors in play, quite a few of them, that might lead us to a conclusion that we’re going to face a moderate recession,” Barkham said. “On the one hand, corporate balance sheets are reasonably strong. And despite the fact that demand will ebb away, I think because of the war for talent, companies will want to hold on to their labor. So we may not see widespread spiking unemployment.”

Yet consumer spending won’t be as hard hit thanks to the pandemic, Barkham explained: “I would say also that consumers even now have still quite a lot of savings and cash accumulated from the pandemic period. And they can use that. They can draw that down in tough times. So, consumer spending might not dip quite as hard as it might otherwise have done. And I think with regard to inflation, we’re not going to see some multi-year wage price spiral that we saw in the 1970s. This is a very nasty inflation spike. But I think we’ve reached the peak of inflation. I think it’s going to ease over the next six, 12, 18 months and by the middle of 2023, that will allow the Fed and the other central banks around the world to start cutting interest rates so demand can revive.”