Davos Economist's Forecasts

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Davos Economist’s Forecasts

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Davos Economist’s Forecasts

Welcome to the Real Estate Espresso podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce.

Today I want to summarize some of the most important themes coming out of the World Economic Forum discussion with some of the global economists and, more importantly, translate what those themes mean for real estate investors who are trying to make a disciplined long-term decision in an increasingly complex environment.

The prevailing mood described by the economists was what they called “vigilant anticipation.” That phrase is worth unpacking. On the one hand, there are very clear structural headwinds, and on the other hand, markets are remaining remarkably resilient. The tension between those two realities is defining the current moment.

So let’s start with global fragmentation. Economists highlighted the continued breakdown of global trade and investment patterns. Tariffs, protectionism, geopolitical tension should, in theory, be bad for growth, and yet the global economy has not fallen apart. Forecasts were repeatedly revised upward over the last year, even after major tariff announcements. So why is that?

Part of the answer is timing. Many tariffs were delayed, softened, or riddled with tons of exemptions. Another part is adaptability. Companies front-loaded inventory, they rerouted supply chains through third countries, and found ways to keep goods flowing. Economists have underestimated how agile the private sector can be in the face of shocks.

There was also a clear warning embedded in the discussion. Just because the impact hasn’t fully shown up yet doesn’t mean it won’t. Some of the inflationary and cost pressures from trade disruptions might still be working their way through the system. They could emerge more forcefully in 2026 and beyond.

Now, for real estate investors, that reinforces a core principle: resilience matters more than short-term forecasts. Projects that only work under perfect conditions are fragile. Projects that can absorb cost volatility and delayed impacts tend to have a better chance of survival.

Now let’s talk about the elephant in the room, that’s artificial intelligence. AI is dominating the discussion, not as a future concept, but as a present economic force. The economists pointed out that the massive investment boom in AI has offset many of the negative effects that we might have otherwise seen from the trade conflict. AI investment is driving capital spending, it’s boosted equity markets, and has created a powerful wealth effect, particularly in the US.

That wealth effect matters. When people feel wealthier, they spend more. That spending has supported consumption and then, by extension, economic growth. In other words, AI has not just been a tech story, it’s been a macroeconomic stabilizer.

Here too, there’s tension. Economists are openly questioning whether AI-related valuations are sustainable. That’s no longer just a stock market issue. If we experience a stock market correction, that will have the negative of the wealth effect and people will stop spending. That, by itself, could trigger a recession.

Now, if we are in a bubble, this is not a debt-fueled bubble in the way that the global financial crisis was. Major players are highly profitable companies with large cash reserves. Much of the early investment was equity-funded and not driven by debt. However, leverage is creeping in. Oracle is a great example. Data centers, energy infrastructure, and supporting systems are increasingly being financed with debt. That doesn’t mean a crash is imminent, but it does mean that the risk is rising.

Now, for real estate investors, the takeaway is not to speculate on bubbles but to recognize second-order effects. A tech-driven slowdown would impact employment. It would impact household formation, office demand, and even housing affordability, especially in those tech-centric regions like Austin and Silicon Valley.

Then we also have to talk about jobs and inequality. Economists are cautious, but they’re also realistic about AI’s impact on employment. Jobs will be lost in some areas. That, there’s no question. History suggests that new jobs will also be created, many of which we haven’t even thought of yet.

The bigger concern may not be unemployment, but wage divergence. White-collar workers who lose their job, are they going to be able to get the same job or an equivalent job? Or are they going to end up having to work in a completely different sector at a much, much lower salary?

Now, for people whose work is complemented by AI, they’re likely to earn more. And those whose work is threatened by automation, they may still have a job, but with much weaker bargaining power. That dynamic has implications for income inequality, for household stability, and ultimately for housing demand.

So from a real estate perspective, this points towards a continued need for attainable housing, in particular, flexible living arrangements, and not so much the luxury product.

Inflation and costs of living were another major focus. The economists emphasized the difference between inflation rates and price levels. Even if inflation slows, high prices remain, and people feel that every day when they buy groceries or pay the rent. Perception is politically powerful and economically consequential.

The US remains under more inflation pressure than Europe. China faces the opposite problem. They’ve got weak demand and deflationary forces. Not only that, a big part of their wealth is tied up in real estate, which is also falling in value. China faces decidedly deflationary forces.

What that means is inflation is no longer globally synchronized. It’s highly regional. So for real estate investors, that means local fundamentals matter more than macro averages. Rent growth, operating costs, affordability will vary dramatically by market.

There was a clear acknowledgement that many governments may attempt to let inflation erode public debt rather than confront it directly. That strategy relies on keeping nominal growth high and real interest rates low, even through subtle forms of financial repression.

At the same time, governments are being forced to prioritize. Defense spending is expected to rise. That’s not just in the US but in many countries. Environmental spending is likely to decline, not necessarily because of climate risk, but because economic competitiveness and energy costs are back in focus. The shift has real implications for infrastructure, for zoning, for energy costs, and long-term planning.

The overarching message from this discussion is not one of pessimism but realism. We’re in a world of structural change, not temporary disruption. Trade patterns, technology, labor, inflation, government priorities, they’re all evolving all at once. That environment rewards investors who underwrite conservatively, who think long-term, and focus on real demand rather than financial engineering.

As you think about that, have an awesome rest of your day, go make some great things happen, and we’ll talk to you again tomorrow.

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