• Macro and micro together are key

Macro-economic issues have dominated the headlines for the past two years but the economic crisis was first manifested in the micro-economic problems of mortgages in the US.

And it is the interaction between the macro and micro that will show us the shape of the recovery.

Roger Bootle, managing director of Capital Economics, during a keynote address in Berlin, took the perspective that banks were shut. He expects the banks to be broken up and the utility bits of them separated from what he described as the casino bits. "There is a danger of excessive regulation," he warned.

We had escaped from the worst of the recession because problems have been transferred from banks to governments but this has a political price.

For Bootle it was a failure of ideas that created the crisis: the unswerving faith in the efficient markets theory had led to overconfidence and hubris.

A different view was offered a week later at MIPIM. Ben Broadbent, chief UK economist at Goldman Sachs, said that preventing a build-up of countries with trade surpluses is as important as stopping a build-up of deficits in preventing a future global economic crisis.

Broadbent said that failing to sort out these global imbalances was the deep-seated risk that the recent recession might be repeated in the future. "The chances of a banking default are now largely behind us," he said.

Although you had to go back to the 1930s to a see a crisis of similar dimensions in terms of the impact on global growth, economies had recovered much faster in this crisis said Broadbent.

There were two reasons why this crisis was not as severe as the 1930s: emerging economies had suffered far less and were bigger contributors to growth; and the authorities had learnt from past mistakes.

The interventions by central banks and governments were much bigger than in previous crises and this had helped stabilise investment spending and the prices of riskier assets.

Broadbent was not concerned to see yields on real estate dropping. "Yields in all asset classes are falling and so it is normal to expect yields on property to come down."

It was important to compare yields against risk free yields, he added. And even though there were widening spreads on sovereign credit there was still room for values of real estate to rise.

Interest rates were unlikely to end up as high as they have been in previous periods, with perhaps 4% a likely result in two to three years. "This depends on whether inflation risks come through," he said.

HA Perspective:

Both Broadbent and Bootle believe interest rates will remain low (in Bootle's case, which is at the extreme, he foresees no rate rises for as long as five years). Without interest rate pressure it is not clear what will bring property to market in the near term.

Some argue that state backed banks will face political pressure to unload property but it seems improbable that in the near term these losses will want to be crystallised. A long, slow workout looks the most likely outcome with the odd bit of exciting transactional activity when lenders and borrowers finally fall out.

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