DESPITE MULTITUDE OF CHALLENGES, GLOBAL ECONOMY MAY AVERT RECESSION.

• Author: Hoffer, Sierra

Emerging from the peak of the COVID-19 pandemic, 2021 and early 2022 saw strong economic recovery, with the U.S. and Europe enjoying robust momentum from the reopening of their respective economies. However, several current pressures have threatened to hamper this upswing, including Russia's invasion of Ukraine, COVID lockdowns in China, and sky-high inflation that has prompted aggressive action by the U.S. Federal Reserve. As the world continues to return to a sense of relative normalcy, these factors are top of mind. Nonetheless, the global economic outlook remains generally positive, with steady above-trend growth boding well for strong performance in the rest of 2022.

These global and national factors are expected to have effects locally. However, Utah typically leads the nation in resiliency and overall economic performance. Given the state's strong fundamentals, we expect our market to endure these economic shifts.

INTEREST RATE CONCERNS

Worries of an economic global downturn are being stoked by the nascent cycle of interest rate hikes in the U.S. The expected 10 to 12 rate increases between this year and next would bring the federal funds rate to between 2.5% and 3.5% by the end of 2023. Historically, it is where rates stand relative to where they have been over the previous four to five years that matters most--data show that a rise of more than 2.5 percentage points above the previous cycle-average level typically triggers a recession. Given the near zero rates of the past five years, projected short-term rates above 2.5% to 2.75% would indicate the likelihood of a mild recession.

If interest rates were to rise above this range, and particularly if inflation expectations start to fall, there would be a pronounced effect on the economy. However, neither CBRE nor the Federal Reserve anticipate the necessity for interest rates to rise above the 2.75% mark--although other economic prediction models do.

Despite higher interest rates, service and manufacturing sector sentiment remains upbeat. Consumer sentiment is weakening, mainly due to increased gas prices, but this has not had a significant impact on spending so far. From a demand perspective, the U.S. economy is in good health.

THE RUSSIA-UKRAINE CONFLICT

Russia's invasion of Ukraine has prompted economic sanctions around the world, disrupting the supply of certain commodities. This will likely have the dual impact of stunting economic growth and increasing inflation. Together, the...