General Economic Overview – Quarter 4 2024
The final quarter of the year continued the previous economic activity trends, with Europe and Asia struggling to improve growth and the US powering ahead as strong consumer spending and employment numbers supported the narrative that we are in a period of US exceptionalism. The UK settled into a new and more stable political regime whilst in the US the election of Donald Trump promises freer spending and a potentially inflationary regime. There was far more uncertainty in Europe as the French Prime Minister had to resign and the German Chancellor hung onto power in a very fragmented political landscape.
In 2023 a quarter of the world’s largest economies had slipped into recession and these concerns remained at the start of 2024, but there was a robust recovery in the first half of the year, driven by easing inflation and aggressive monetary policies. The Federal Reserve’s decision to cut interest rates by half a percentage point in early 2024 was a pivotal moment, signalling a shift towards supporting economic growth. This move was mirrored by other central banks globally, contributing to a more favourable economic environment.
The global economic growth picture has been varied and disjointed, as a range of countries have had political and economic issues, but equity markets have generally continued to move ahead. The focus has been on the US, led by the technology sector, but a number of developed markets have produced good absolute returns ranging from roughly 8 to 20% with large cap growth stocks providing the strongest returns. As we moved through the year, this broadened out with some recovery in value stocks as high valuations caused concerns, especially in the US.
Inflation has started to rise again in developed markets which has caused some concerns and given central bankers a tricky short-term environment to negotiate. The path of rates still seems to be downwards but there are areas of the world where rates are heading upwards, such as Japan and Brazil. Recent language from the Fed also suggests the pace of rate cuts is likely to slow in 2025 which is giving investors food for thought.
Overall, investors appear broadly more positive as we enter 2025, based on the continued progress of the US economy. The future prosperity of the US economy will no doubt come to a crossroads as the presidency of Donald Trump takes hold, and much of the market sentiment in the early part of the year will be driven by his policies and how they are received by investors.
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