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Low Lending Rates Continue to Fuel Europe's Housing Market Recovery

Prepared in collaboration with the World Economic Forum

Empowering Public-Private Collaboration in Infrastructure National Infrastructure Acceleration (NIA) approach

S&P Global Ratings

COP24 Special Edition Shining A Light On Climate Finance

S&P Dow Jones Indices

Considering the Risk from Future Carbon Prices

S&P Global Ratings

Global Economic Outlook 2019 Autumn Is Coming


Low Lending Rates Continue to Fuel Europe's Housing Market Recovery

Housing market activity is set to expand in all major European markets this year, fueled by historically low lending rates and gradually accelerating economic growth. We expect housing prices will continue to rise through 2018 because we believe the European Central Bank will maintain ultra-low rates, with no hike before 2019.

We expect Ireland's housing market to experience the strongest year-on-year nominal house prices rises of 8.5% this year and 7% in 2018, underpinned by supply shortages and continuing economic recovery. The Brexit-related relocation to Ireland of some of London's financial sector workers should also support the market. Conversely, we expect price rises to slow in the U.K. to 2.5% overall this year, and to decline by 1% in 2018 on Brexit uncertainties, although still supported by pent-up demand and favorable financing conditions.

Overview

  • We forecast residential property prices will rise in all major European markets this year amid accommodative monetary policies and economic growth.
  • The combination of very low borrowing rates and lower prices has boosted the purchasing power of European potential buyers, although to various degrees across the region.
  • We expect the strongest price rises this year will be in Ireland (8.5%), Germany (7.0%), and The Netherlands (7.0%).
  • Italy's housing market is the weakest performer, with forecast price rises of 0.5% after a prolonged period of decline, owing to slow economic recovery.

The German residential property market continues to boom on tight supply and a strong economy, but our forecast of a 7% year-on-year gain is slower than in 2016 as more new construction eases the pressure. The Netherlands' strong housing recovery should also continue this year, gaining 7%, on rising income, supply shortage, and sustained low interest rates.

House price inflation in Portugal and Spain, of 6% and 4%, respectively, are both being aided by foreign buyers.

We expect Belgian house-price growth will be dynamic at 4% this year and 3.5% in 2018 on the back of solid economic performance. But, further ahead, the prospect of gradually rising borrowing rates and a less favorable mortgage tax regime should soften house price rises. In France, rising consumer confidence could lift prices by 2% this year, but they could flatten next year on the back of forthcoming fiscal measures. In Switzerland, high prices and regulatory measures are likely to keep a lid on house price rises (1.3% in 2017 and 1.5% in 2018). Italy is experiencing the slowest price rise among major European markets, at a forecast 0.5% this year, after a prolonged period of decline, due to weak economic recovery.

 



Empowering Public-Private Collaboration in Infrastructure National Infrastructure Acceleration (NIA) approach

Executive summary

Infrastructure is a key economic and social driver of sustained growth and acts as a true enabler of a country’s competitiveness. Yet new infrastructure development remains insufficient and ineffective, and many investors continue to be discouraged by a general lack of information, the absence of bankable deals and risky policy environments. Enhanced public-private collaboration and understanding are therefore required more than ever, as stretched government budgets and increasing infrastructure needs conspire to widen the infrastructure financing gap.

There is no silver bullet for addressing the many facets of this global challenge; however, in a world where there is no shortage of capital, pursuing the right collaborations and frameworks may offer a potential solution. In this context, the National Infrastructure Acceleration (NIA) model proposes an innovative approach to a sustained country dialogue to address infrastructure development and investment.

How Argentina Aims To Bridge Its $358 Billion Infrastructure Gap As Investors Hesitate To Return

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NIA facilitates interaction between the private sector and governments, thereby contributing to improving countries’ investment climates, deepening local capital markets and ultimately accelerating the development of infrastructure pipelines.

To achieve this, the NIA initiative convenes national multistakeholder working groups, recognized and endorsed by the national governments concerned. These working groups represent a standing, multistakeholder platform designed to facilitate interaction between its members, the goal of which is to identify actionable solutions to advance infrastructure development and financing. They also provide a space to address policy questions and initiate collaborative projects among members.

This report describes a standardized NIA Implementation Roadmap created by the World Economic Forum in close cooperation with S&P Global. By defining a series of activities that have proven to be effective in implementing NIA successfully at a country level, the Forum aspires to expand its reach and further the adoption of the model in additional countries, municipalities and regions around the world.

This publication is intended to serve as a blueprint for policy-makers, private entities and multilateral development banks (MDBs) that want to introduce a sustainable model for public-private collaboration in their respective countries or jurisdictions.

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Download


COP24 Special Edition Shining A Light On Climate Finance

Highlights

− Green loans are evolving, with the Climate Bond Initiative forecasting nearly $1 trillion in green bond issuance by 2020.

− Despite the uptick in green bond and loan issuance, the market still remains relatively small, especially compared to the universe of assets comprising CLO 2.0 transactions.

− In our view, a green CLO market has large growth potential, boosted by regulatory initiatives and emerging interest from both issuers and investors in 2018.

− We built a hypothetical rating scenario for a green CLO to compare and contrast the underlying portfolio and structure with a typical European CLO 2.0 transaction.

− Our hypothetical green CLO analysis showed that green loans may have different fundamental characteristics to corporate loans, such as lower asset yields, higher credit quality, and higher recovery rates assumptions.

The global collateralized loan obligation (CLO) market has experienced a rebirth (2010 in the U.S. and 2013 in Europe). New issuance continues to increase due to investor familiarity with the product, as well as low historical default rates. While a market for green assets, such as green loans and bonds has been established for a while, although still of a relative size, a sustainable securitization market is still in its infancy. Considering the challenge in financing the amounts, S&P Global Ratings expects green CLOs to play a role in increasing the private sector presence in the sustainable finance market.

Following the Paris Agreement that came into force in November 2016, 184 parties have ratified the action plan to limit global warming. For this purpose, developed nations have pledged to provide $100 billion (about €87 billion) annually until 2025. As part of this deal the EU has committed to decrease carbon emissions by 40% by 2030. In March 2018 the European Commission (EC) proposed the creation of environmental, social, and corporate governance 'taxonomy', regulating sustainable finance product disclosures, as well as introducing the 'green supporting factor' in the EU prudential rules for banks and insurance companies.

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Considering the Risk from Future Carbon Prices

Along with the advent of the 2015 Paris Climate Agreement has come a growing understanding of the structural changes required across the global economy to shift to low- (or zero-) carbon, sustainable business practices.

The increasing regulation of carbon emissions through taxes, emissions trading schemes, and fossil fuel extraction fees is expected to feature prominently in global efforts to address climate change. Carbon prices are already implemented in 40 countries and 20 cities and regions. Average carbon prices could increase more than sevenfold to USD 120 per metric ton by 2030, as regulations aim to limit the average global temperature increase to 2 degrees Celsius, in accordance with the Paris Agreement.

S&P Dow Jones Indices launched the S&P Carbon Price Risk Adjusted Indices to embed future carbon price risk into today’s index constituents.

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Global Economic Outlook 2019 Autumn Is Coming

Highlights

- The direction for the global economy in 2019 is clear: GDP growth will slow, led by the U.S., which will likely see the rate of expansion fall to around 2% by the end of next year. Chinese growth will moderate. Europe's growth will remain relatively low and stable.

- We see the risks around our baseline on the downside. These include worries about the entrenchment and expansion of the U.S.- China dispute, as well as market turbulence related to the path of interest rate normalization by the U.S. Federal Reserve. Brexit and Italy's fiscal woes may have an impact, but remain regional risks for the most part.

- All is not lost! Policy makers across the major economies can seize the opportunity to shed shibboleths and undertake bold (non-monetary) policy actions to mitigate the slowdown.

- We expect the path of growth and policy normalization next year and beyond to be orderly for the most part; more an arrival of autumn than a coming of winter. This global slowdown is both necessary and healthy. It's not the beginning of another global financial crisis.

Dec. 11 2018 — The outlook for the global economy in 2019 is straight forward: GDP growth will slow in aggregate and in most major countries. The U.S. will lead the trend, as fiscal stimulus will wane and monetary policy normalization will continue, with both weighing on growth. China's expansion will continue to moderate despite a pause in corporate deleveraging, and we expect further policy easing as ongoing trade tensions and the effects on both business and investor confidence continue to bite. European growth will trundle along, weighed down by concerns about Brexit, Italy's budget, and Germany's new leadership ahead of a reshuffling of the European governance. Across emerging markets, tech and oil exporting economies may struggle in relative terms.

Moreover, the risks to this outlook are on the downside, driven in large part by two scenarios. First, the U.S.-China entanglement (it's not just about trade and never was) may worsen and broaden before it gets better. The pause in tariff escalation by Presidents Trump and Xi following the recent G-20 meeting in Buenos Aires was welcome, but much work lies ahead. Second, as our just-completed Credit Conditions Committee agreed, with the cycle turning, the possibility of surprises on the credit front is rising as well. These include debt affordability as well as access to financing.

Despite this gloom, we are not jumping on the crisis band wagon. In broad terms, we see the slowing of global growth as both necessary and healthy. We expect the process to be reasonably orderly, with recent bouts of market turbulence a reminder that slowdowns are not always smooth. It need not be the case that winter is coming, but the global synchronized upturn of 2017 has clearly passed, and we are entering the autumn of the long expansion that followed the global financial crisis.

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