Global Economy’s in a ‘Super Cycle’

NEW YORK CITY-It may not seem like one from the vantage point of a region that’s still recovering from the worldwide recession, but the global economy is currently in the middle of a “super cycle,” economist and author John Calverley said in his keynote address at the GRI USA conference held here Wednesday. The cycle began around 2000 and is expected to last until around 2030, with broad implications for commercial real estate.

There have been three such super cycles, said Calverley, head of macroeconomic research at UK-based Standard Chartered Bank and author of Bubbles and How to Survive Them. In the first of these cycles, from which ran from 1870 to 1914, the US surpassed Great Britain as the world’s largest economy. The second cycle was bracketed roughly by the end of World War II and the onset of the oil crisis of the early 1970s.

Sometime during the current cycle, China will become the world’s leading economic power, although the US dollar will remain the world’s reserve currency, Calverley predicted. He added that this is a double-edged sword: although the housing downturn and capital markets crisis in the US precipitated the global recession in 2008, “the next one may be ‘made in China.’ ” 

It’s China as well as other rising markets that are leading the current cycle, which is also being fueled by new technologies. Calverley cited a “huge demand” for real estate in rising countries, bringing opportunities for commercial real estate players. Real estate companies in the East may seek to diversify into Western markets and vice versa, he said.

On the domestic front, Calverley said the US faces a low near-term risk of inflation and should soon start seeing better employment growth, but cautioned that it will be a slow road to recovery. One factor slowing the recovery, he said, is that there hasn’t been a rebound in housing starts as there usually is following a recession. “The good news is that at some point, there will have to be,” he said.

He cautioned that another region hit hard by the recession, the European Union nations, isn’t out of the woods yet, either. “The European debt crisis has not gone away,” he said, adding that it’s likely to come back “in a series of waves” across the region.

However deep their troubles may be, European nations have at least attempted to get a handle on their fiscal issues. Japan and the US have been the only major nations that haven’t sought to address their own sovereign deficits, Calverley said, calling the potential for fiscal crisis here “a grave risk.”

Much of the daylong conference at the Plaza Hotel, sponsored by the Global Real Estate Institute, was given over to interactive, off-the-record group discussions by high-level executives on a variety of subjects. In one, titled “Debt Financing: Who Are the New Lenders?,” participants held forth on the currently slim opportunities for lending, valuations that do not yet suggest a pricing bubble and the current state of the B-piece market, among other things. “The old market that used to buy these things has disappeared,” one lender observed about B-piece investors. “You can’t have a B-piece market with just two players.”