In 2020 2Q, GDP of most countries fell as expected, but China’s GDP grew by 11.5% QoQ as it resumes economic activities

• In 2Q, economic activity ceased in each country due to travel restrictions in order to contain COVID-19 and GDP in most markets recorded the biggest decline in history. The US GDP in 2Q decreased by 32.9% QoQ due to the fall in personal consumption and private investment, and as for the EU, GDP also decreased by 11.9% QoQ.

• China resumed its economic activities first and even though its GDP recorded a -10.0%  growth in 1Q it quickly recovered by 11.5% QoQ in 2Q.

• GDP in 3Q for the US and Europe is expected to improve as the manufacturing PMI in July for both regions have already surpassed 50.

• However, the unemployment rate in the US in July rose to 10.2% and 7.1% for the EU, so it may take some time for consumer sentiments to recover.

Monthly default CP index in the US increased but for Europe and APAC, it maintained a historically low level

• The US defaulted bill index for July has more than doubled from the end of 2019 but is less than a third from 2009. In a survey of US loan officers at the end of July, overall opinion stated that they would strengthen their loan terms.

• The number of defaulted bills issued by corporations in major European and APAC countries in June was similar to the pre-COVID-19 crisis level.

• New loans may not be easy depending on the sector, but the possibility of a credit crunch in the market is expected to be low as loan spreads for investment grades stabilize.

Transaction volume in the US, Europe and APAC in the 1H fell by -28.8%, -9.6%, and -33.9% respectively

• Global CRE transaction volume contracted as expected and for Europe and APAC, it decreased by 30.7% and 33.9% respectively in 2Q, which were reasonable compared to the 67.3% decline in the US for the same period.

• Despite the fall in transaction volume, the percentage of cross-border investors in each market until the end of July was similar to that of 2019. This could be because deals which were on-going before the pandemic were closed during the year or these cross-border investors were from neighboring countries. Considering the ease of travel restrictions, cross-border investment activity in 3Q is not expected to shrink more than the benchmark market.

• On the other hand, the industrial sector in the US increased by 17.4% for the 1H YoY, and Europe’s multifamily sector, which had a large portfolio transaction in Germany, increased by 13.6% YoY.

Due to the decrease in number of transactions, price adjustment only occurred in certain sectors

• In 2Q, not only the transaction volume but also the number of transactions was half the average of the previous decade. There were few distressed properties for sale and transactions mainly consisted of prime assets. Price fluctuations were insignificant except for some sectors such as the hotel.

• As the COVID-19 crisis prolongs investors' “Wait and See” strategy in some countries, including the US, is expected to continue in 3Q. In the short term, only selective transactions focused on prime assets are expected.