In Q4 2024, the global economy demonstrated a mixed performance, with advanced economies showing signs of stabilisation while emerging markets experienced uneven growth. Key factors influencing this quarter include a slowdown in global inflation, moderate interest rate adjustments by central banks, and a shift in commodity market dynamics.
“Courage taught me no matter how bad a crisis gets; any sound investment will eventually pay off.”
-Carlos Slim Helu
Australia’s economy showed signs of resilience in Q4 2024, despite ongoing global uncertainties. Economic growth was bolstered by strong performance in the services sector, recovering household consumption, and steady exports. Inflationary pressures eased, allowing the Reserve Bank of Australia (RBA) to maintain a neutral monetary policy stance. GDP growth for 2024 is estimated at 2.6%, consistent with the mid-year forecast, reflecting a balanced recovery across key sectors.
Highlights included September quarterly GDP of 0.6% seasonally adjusted, driven by robust domestic consumption and steady export volumes, particularly in iron ore and LNG. Headline inflation eased to 2.8% year-over-year, down from 4.1% in Q3. Declines in food contributed significantly to this moderation. While Energy saw extended and expanded Commonwealth Energy Bill Relief Fund rebates, and the introduction of State government rebates, applied from July 2024. Core inflation remained elevated at 3.5%, primarily due to persistent housing costs and service price increases.
Unemployment stabilised at 3.9%, with strong job creation in healthcare, education, and professional services. However, salaries and wages increased by 4.0% year-over-year, supporting household incomes but maintaining upward pressure on inflation. The current Australian situation has led the RBA to hold cash rates steady at 4.35%, signalling confidence in the economy’s ability to sustain growth without additional rate hikes. Inflation trends and labour market conditions are key inputs into future RBA rate decisions.
Australia’s economic performance in Q4 2024 continues to reflect a resilient and adaptive economy amidst global challenges. With inflation moderating and steady growth across key sectors, the outlook remains cautiously optimistic. However, policymakers and businesses must remain vigilant to emerging risks and structural challenges in the year ahead.
From a global perspective, inflation decelerated to an average of 4.2%, down from 4.8% in Q3. Declines in energy prices and easing supply chain pressures contributed to this trend. While core inflation remained sticky in several advanced economies, particularly the Eurozone and the United States, due to persistent wage growth, Central banks in these economies maintained a cautious approach. The Federal Reserve held interest rates steady, while the European Central Bank (ECB) implemented a minor rate cut to support growth. With some emerging market economies, notably in Latin America, cutting rates to stimulate domestic demand.
The U.S. economy demonstrated solid resilience in Q4 2024, achieving steady growth despite global headwinds. Strong consumer spending, a robust labour market, and a rebound in key sectors like technology and energy were major contributors. Inflationary pressures continued to ease, allowing the Federal Reserve to maintain its current interest rate stance. GDP growth for the quarter reached 2.2% annualised, signalling sustained economic momentum.
Europe, including the UK, faced a mixed quarter with modest growth supported by services and tourism, while manufacturing continued to struggle. Inflation showed signs of cooling, prompting central banks to reassess their policy stance. However, persistent geopolitical and energy challenges remained key concerns. The Eurozone recorded a GDP growth of 0.4% for the third quarter, while the UK grew at 0.1%. Services contributed positively, while manufacturing sectors continued to contract.
Asia and Emerging Markets experienced divergent outcomes in Q4 2024. While growth in China slowed amid property sector challenges, India maintained robust expansion. Several Latin American and African economies faced economic pressures due to weaker commodity prices and currency volatility, but select markets displayed resilience, driven by domestic reforms and stable demand. China’s nominal GDP growth expanded by 5.4% year-on-year, boosted by a series of stimulus measures launched in September to boost recovery and regain confidence. India, in contrast, grew at 6.4%, driven by domestic consumption and infrastructure investments. China reported a modest inflation rate of 0.4%, while India’s inflation hovered at 5.2%, driven by higher food prices. Emerging markets in Latin America saw declining inflation rates due to tighter monetary policies.
Investment Markets Commentary
The fourth quarter of 2024 witnessed a continuation of economic and market complexities shaped by diverging monetary policies, geopolitical tensions, and uneven economic recoveries. Global equity markets displayed mixed performance, with developed markets generally stabilising after a turbulent third quarter, while emerging markets faced headwinds from a strengthening U.S. dollar and capital outflows. Commodity prices remained volatile, driven by geopolitical risks and fluctuating demand, while inflationary pressures showed signs of easing in some regions.
USA
Equity markets saw modest gains, with the S&P 500 closing the quarter up by 4%. The technology and healthcare sectors led the charge, bolstered by strong corporate earnings and investor confidence in innovation-driven industries. Volatility in the markets eased, reflecting a balanced sentiment among investors as inflation risks receded and recession fears softened. However, markets are awaiting clarity on the Fed’s future policy trajectory.
In fixed-income markets, bond yields remained stable, with the 10-year Treasury yield ending the quarter at 4.2%. This was driven by expectations of a potential rate cut in early 2025 as inflationary pressures abated. Corporate bond markets remained well supported, benefiting from improved credit conditions and investor demand for yield. Overall, the U.S. investment landscape in Q4 2024 reflected cautious optimism, with investors balancing growth opportunities against persistent macroeconomic uncertainties.
Australia
Equity markets showed moderate performance, with the ASX 200 falling -0.8% during the quarter with only consumer staples (+0.5%) and energy (+0.3%) delivering positive returns. Real estate was the worst performing sector, returning -7.0% over the month.
In fixed-income markets, Australian government bond yields stabilised, reflecting confidence in the RBA’s measured approach to monetary policy. Corporate bond markets remained resilient, supported by solid fundamentals in key sectors such as resources and financials. Overall, Australia’s investment markets in Q4 2024 presented a mixed picture, with strong export-driven sectors offsetting domestic economic headwinds, providing opportunities for selective, sector-focused investments.
The chart below shows the movement of markets over the quarter and for the 12 months, to 31 December 2024. Notably, most of the indices are positive for the year, except for both the NZD and AUD to USD relationship, which were negative for the quarter as well. The performance for the fourth quarter highlights a little more negativity.
Europe & UK
Equity markets in both regions were muted, reflecting tepid investor sentiment. The STOXX 600, representing broader European markets, edged up by just 1%, driven by modest gains in defensive sectors like utilities and healthcare. The UK’s FTSE 100 ended the quarter flat, as a stronger pound and weak domestic demand weighed on export-driven companies. Investors showed caution, awaiting clearer signals on the economic trajectory and central bank policy in 2025.
Fixed-income markets in Europe and the UK remained steady, with government bond yields reflecting a cautious outlook. The ECB’s and BoE’s decisions to hold rates steadied market expectations, while corporate bond markets saw moderate activity, supported by improved credit conditions in select sectors. Overall, Q4 2024 highlighted the challenges faced by European and UK investment markets, as persistent inflation and slow growth continued to weigh on sentiment, leaving investors focused on defensive strategies and selective opportunities in resilient sectors.
Japan
Equity markets performed strongly, with the Nikkei 225 rising 5.3% over the quarter. Gains were led by the manufacturing and technology sectors, buoyed by a weaker yen, which enhanced export competitiveness. Japanese corporates benefited from robust demand for semiconductors, industrial machinery, and renewable energy technologies. Investor confidence also improved, driven by hopes that structural reforms and increased capital investment could sustain long-term growth momentum.
The yen depreciated further to 155 per U.S. dollar, marking its weakest levels in years. While this bolstered exports, it also increased the cost of imports, particularly energy, which remains a critical component of Japan’s trade balance. Bond yields remained low, reflecting the Bank of Japan’s accommodative stance and limited inflationary pressures. Overall, Japan’s investment landscape in Q4 2024 highlighted the benefits of a favourable export environment while underscoring the challenges of sustaining domestic growth and tackling structural issues.
Emerging Markets
In Q3 2024, emerging markets showed mixed but generally positive performance, with equity and debt markets benefiting from global central bank actions. The Federal Reserve and other major central banks cut interest rates, which provided support for emerging market assets, especially in debt markets. Emerging market debt, particularly high-yield bonds, performed strongly, with a return of 6.1% for the quarter. Sectors such as real estate and telecommunications were among the best performers, while energy saw notable gains as well.
On the equity side, emerging markets saw some volatility, but overall, they benefitted from stimulus measures in key regions, particularly China. Chinese equities rallied strongly towards the end of the quarter following significant monetary and fiscal stimulus from the government. This boosted investor confidence and helped to lift other emerging market stocks, with Asia ex-Japan emerging as the top-performing region. Despite concerns about global economic health and muted commodity performance, emerging markets continued to show resilience and are expected to benefit from further policy easing and stabilising inflation.
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Regards,
Marshall Brentnall & the AAN Asset Management Investment Committee