The Skyscraper Index is a concept put forward in January 1999 by Andrew Lawrence, research director at Dresdner Kleinwort Wasserstein, which showed that the world’s tallest buildings have risen on the eve of economic downturns. Business cycles and skyscraper construction correlate in such a way that investment in skyscrapers peaks when cyclical growth is exhausted and the economy is ready for recession. Mark Thornton’s Skyscraper Index Model successfully sent a signal of the Late-2000s financial crisis at the beginning of August 2007.
Lawrence, now head of Hong Kong and China property research at CIMB Group, told CNN: “The Skyscraper Index has a good 150-year correlation between the world’s tallest buildings and economic slowdowns and recessions. For China, there is no reason that correlation will change.”
“China will be building over 40% of the world’s skyscrapers over the next four years so clearly there’s a building bubble,” Lawrence said.
Recent examples of the Skyscraper Index predicting economic downturn include Malaysia’s Petronas Towers, completed in 1996 just sixteen months before the Asian financial crisis hit, halving the value of the Malaysia stock market. Two months after the completion of Dubai’s Burj Khalifa in October 2009, the country was struck by a massive debt crisis related to the global recession.
Of course, certain people have been predicting the collapse of China for decades, and the country has always managed to confound its naysayers until now. Aside from Lloyd Blankfein’s questionable endorsement however, consensus is growing that the Chinese housing market bubble and local government debt are serious crises that, if left unchecked, may have serious consequences for China and the world’s economy.
[Image via: CNN // Via: Gizmodo]