Emerging markets wealth propping up London?
One of the factors behind London’s “good recession” is the sharp increase in wealth in emerging markets, according to one economist
Anyone walking around Central London would be forgiven for questioning whether the UK has actually been in a double-dip recession. Shops are crowded and restaurants are fully booked, Vicky Redwood, chief UK economist at Capital Economics, wrote in a recent research report.
In London, employment, GDP and the housing market have all been stronger than in the rest of the UK; Central London, in turn, has tended to outperform the rest of the capital.
Prime Central London house prices are 30% above their peak before the 2007 financial crisis but prices in outer London are broadly at the same level as in 2007; shop rents in Central London are 15% higher, while rents in the rest of London are well below their high point, Redwood noted.
The population in Central London is 1.7 million, only about a fifth of the total Greater London population of 8 million, and Central Londons surface is 319 square km, compared with Greater Londons area of 1,583 square km.
Redwood said the experience in Central London was quite different from that in the rest of the capital, where the picture was rather less rosy.
She noted that home prices in outer London were only just about back to their previous highs of 2007, after falling during the recession.
CENTRAL LONDON SAFE HAVEN
The sharp rise in wealth in emerging markets is one of the factors cited by Redwood as supporting flows of money into the UK capital.
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While most developed Western economies are struggling even to make up the losses seen during the recession, emerging Asia has seen GDP since the middle of 2008 rise by 30%, Redwood said.
And while the rise in oil prices has hamstrung consumer demand in the West, it has provided a boost to the income of oil-producing states in regions such as the Middle East.
The pound, which has weakened significantly since 2007 after the Bank of England slashed interest rates and printed money to kick-start the economy, has boosted tourism in the capital.
Although the number of tourists visiting London fell during the recession, those who do come spend more, with spending now 40% above its 2005 level, the Capital Economics analyst said.
Central London also benefits from its safe-haven appeal as the eurozone crisis has escalated, according to Redwood.
This is particularly applicable to the property market, where foreigners have been making up a large share of buyers and renters.
The area was also stimulated by important infrastructure projects, such as the preparations for the Olympics whose effect boosted the UK GDP and Crossrail, a big railway project.