Research Briefing | Oct 25, 2022

Housing downturn could see global growth drop to zero

With the world on the cusp of a property market downturn, we have modelled three scenarios for more severe housing slumps featuring negative wealth effects, falling residential investment, and tightening credit conditions. In our worst-case scenario, which would include all three factors, world GDP growth drops to just 0.3% in 2023, versus 1.5% in our baseline.

What you will learn:

  • Falling house prices can have a negative impact on consumer spending and GDP by reducing household wealth, although estimates of the scale of the effect vary widely. Our modelling suggests that if world house prices were to fall 10% below our baseline forecast, global GDP would be reduced by 0.2% in 2023.
  • Historically, falling house prices have been associated with declines in residential investment, leading to a further drag on GDP. While we think the scope for a slump in residential investment now is lower than at the time of the global financial crisis (GFC), a drop of around 10% compared to baseline is plausible. This would chop another 0.6% from world GDP in 2023.
  • A further impact from global house prices is possible via a tightening in credit conditions due to higher expected losses at lenders and collateral effects. A tightening of credit conditions of around one-fifth the scale seen in the GFC would cut world GDP by an additional 0.5% in 2023.
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