ECB’s view is ‘interest rate stability’

Slovakia to outperform

Dubai’s economy to shrink for second year in a row

Global commercial property markets show signs of recovery

ECB’s view is ‘interest rate stability’

The European Central Bank (ECB) recently said that interest rates are ‘appropriate’ and that inflation is expected to remain ‘moderate’, signaling it has no intention to tighten monetary policy any time soon.

The bank said in its monthly bulletin: ‘Current rates remain appropriate. The economy will grow at a moderate and uneven pace and price developments are expected to remain moderate over the policy-relevant horizon.’

In its latest quarterly survey of professional forecasters included in the monthly bulletin, the ECB said economists cut their forecasts for economic growth to 1.1% this year and 1.5% next year. That compares with a previous growth prediction of 1.2% this year and 1.6% in 2011.

The forecasters raised their prediction for 2010 inflation to 1.4% from 1.3% in February. The inflation forecasts for 2011 and over five years remained unchanged at 1.5% and 1.9% respectively

Slovakia to outperform

According to a report from Business Monitor International (BMI), Central and Eastern Europe (CEE) still holds risks for investors as a result of the build up of the years of heavy foreign lending into the region.

BMI say that Slovakia is a likely future out-performer and should be in a position to benefit from the tentative macroeconomic recovery which is expected from 2010 onwards. The country is an attractive market for FDI and its good geographical access to both the major developed and developing economies of the EU, as well as euro adoption in 2009, makes it attractive as a base for export-oriented manufacturing.

While Slovakia has been recently affected by the global financial crisis, the economy has held up relatively well and there is an increasingly optimistic outlook for 2010. In May, the credit ratings agency Fitch Ratings gave Slovakia an "A+" rating with a ‘stable’ outlook. Fitch noted Slovakia's institutional strengths, its political stability - including its membership of the European Union (EU) - and the generally attractive business environment.

Slovakia's real GDP growth is expected to outpace the euro zone average through to the end of our five-year forecast period, with the economy projected to expand by an average of 3.3% between 2011 and 2014.

Commenting on the property market in Slovakia, the BMI report says that the boom period, like that of many other countries, ended in 2008. During the boom years, the economy there performed well, credit was freely available, consumer confidence and demand were high, and there was no oversupply of properties. However the real estate market contracted in 2009, in Q209, house prices fell by an average of 15.3% year-on-year (y-o-y) in real terms. The Slovakian market is expected to be fairly flat in 2010 and house prices are not expected to fall much further, except in highly overvalued areas.

The supply of residential property is currently outstripping demand and the steepest price falls have been for apartments, especially small apartments. The oversupply of residential property is affecting vacancy rates. The vacancy rate for Bratislava in Q2009 increased by 2.8 percentage points from 8.7% to 11.5%, according to CBRE.

The BMI report concludes that the outlook for the construction industry is quite favourable and that the robust long-term picture partly reflects the ongoing upgrade of transport infrastructure - demonstrative of the government's capital spending plans. This spending should partly offset a slowdown in construction activity by the private sector.

The report also highlights that the reduction in corruption, the implementation of a highly attractive foreign investment policy in Central Europe, joining the EU in 2004 and the adoption of the euro in 2009 have all demonstrated Slovakia's commitment to economic reform.

Dubai’s economy to shrink for second year in a row

Dubai’s economy is going to shrink for the second consecutive year with a decrease of -0.5% in 2010, according to the International Monetary Fund.

Property prices in Dubai have fallen by -50% since their peak towards the end of 2008, with the emirate taking a $20m bailout from Abu Dhabi in 2009, having already borrowed $109bn with the aim of turning itself into a major financial centre and tourist destination.

Abu Dhabi meanwhile is the largest of the United Arab Emirates and according to the IMF it is predicted to see growth of +3.7% in 2010.

During Q1 2010 commercial real estate markets across the world have shown clear signs of stabilisation and recovery with capital values also appearing more stable. Attention is focused on prime properties with secure income streams, particularly in major cities such as Hong Kong, London, New York and Paris, according to ING Real Estate Investment Management.

Timothy Bellman, global head of research & strategy at ING REIM said: “There have been clear signs of markets for prime properties stabilising and recovering in the first five months of the year. They're doing better than we expected in our Global Vision annual strategy paper at the end of 2009, but we are now reaching a crucial turning point for the upside. Our analysis suggests that real estate values are not yet being affected by the sovereign debt problems in Europe and we think investors may see returns at the upper end of their expectations in the next few years.”

ING Economics predict that the global economy will have a growth rate of +3.5% in 2010, with the US expected to grow by +3%, the Euro-zone by +1.2%, Japan by +2.6% and China by +11%. The Euro-zone growth has been reduced by -0.2% due to the uncertainty arising from the Greek sovereign bond crisis.

Bellman said: “ Following the greatest global financial and economic crisis since the 1930s, it is axiomatic that the outlook is not without risk and uncertainty. A very clear risk specific to real estate is the scale of real estate debt that needs to be refinanced over the coming few years. In this context, we believe real estate investors with a low risk appetite will likely wish to continue to focus on the retail and industrial sectors which tend to exhibit more stable returns in a downturn and outperform in the early stages of a recovery. Investors with a slightly greater appetite for risk may wish to note that in our latest forecasts we expect the recovery of office markets to be a little sooner and a little stronger than we previously thought.”