Quarterly economic update: October - December 2024
Although 2024 was a great year for investors, the final quarter of 2024 reflected a mixed economic landscape. While consumer spending and equity markets showed resilience, persistent inflation, cost-of-living pressures and a cooling housing market have tempered optimism.
Global shares delivered very strong returns in 2024. Optimism over the promise of Artificial Intelligence (AI) as well as progress towards lower global inflation and interest rates were the major positive drivers of global share markets, with the US technology focused NASDAQ 100 index posting a 29.6% annual return and the broader S&P 500 Index returning 24.5% (both in local currency terms).
European shares made a more modest 5.9% return for the year, while Asian share markets made strong returns, including China (19.5%) and Japan (20.7%). Emerging markets also delivered strong returns but this was a mixed performance across countries, for instance Taiwan posting a 43.6% return in contrast with Brazil at -29.5%.
Australian shares as measured by the ASX 300 made a strong 11.4% return for the year, led by IT and Finance stock, but partly offset by a struggling Resources sector.
Driven by these strong sharemarket returns, Chant West reports that the median growth superannuation fund (61 to 80% in growth assets) delivered 11.4% for the calendar year, with higher risk portfolios faring even better.
Interest Rates – Will They Rise or Fall?
Inflation in Australia showed signs of easing during the final months of 2024, with the trimmed mean inflation rate falling to 3.2% in November, down from 3.5% in October. The RBA held the cash rate steady at 4.35% during its December meeting, emphasising the need to maintain current policy settings to bring inflation back within the target range over time. Monthly consumer price index (CPI) data for November indicated a 2.3% rise in the 12 months to November 2024, up from a 2.1% rise in October, according to the Australian Bureau of Statistics. Economists remain divided on whether further rate hikes will be necessary in 2025, with some predicting a rate cut as early as February.
Cost of Living Pressures Continue
Consumer Price Index and total spending figures continued to show persistent inflation through the later part of 2024. While global inflation figures measures have generally reduced due to declines in energy and transport costs, consumers around the world remain angry with the cost of living. There are still persistent price pressures in health care, insurance and rents that continue to squeeze consumer budgets. Voters expressed this anger at the ballot box in 2024 (for instance in Britain, France and the US).
Is the Housing Market Finally Slowing?
Australia’s housing market experienced a slight downturn, with national home values recording their first decline in nearly two years. CoreLogic data for December shows a 0.1% decrease in dwelling values, driven by higher interest rates, reduced borrowing capacity, and increasing cost-of-living pressures. The supply of new housing remains constrained, exacerbating affordability challenges.
Global Outlook for 2025
Globally, the economic outlook remains resilient, despite significant risks. According to the OECD, global growth is expected to stabilise at around 3% in 2025 and 2026, underpinned by robust performance in emerging economies and gradual recovery in advanced economies. Geopolitical tensions, including conflicts in Ukraine and the Middle East, continue to pose challenges to supply chains and energy markets. Persistent inflation in key regions and the potential for monetary tightening remain areas of concern. For Australia, economic ties with China and commodity exports are key factors influencing the outlook, especially as China's economic activity shows signs of stabilising.
Trump’s Presidential Return
The inauguration of the Trump administration on January 20th has prompted considerable speculation about potential economic implications. Key areas of focus include trade policy shifts, tax reforms, and geopolitical stability. Early indications suggest a renewed focus on protectionist policies, including higher tariffs on imports from key trading partners. For Australia, this could mean increased challenges in sectors like agriculture and mining, where access to the US market is critical.
The outlook and implications for investors
Global share prices made very strong gains in 2024 despite some challenges. The enthusiasm for AI and technology were the key factors supporting global rising share prices. There was also confidence that with inflation falling across the world, central banks would make further cuts to interest rates. A lower interest rate environment should be more supportive of corporate profits and thereby share prices in the long run.
However, these exuberant expectations may be challenged by considerable global political risks in 2025 with the continuing Russian-Ukraine war as well as conflict in the Middle East. The return of Donald Trump to the White House could also generate concerns for the global economy with the potential imposition of large tariff increases for America’s trading partners (particularly China and Europe) as well as the threatened mass deportation of illegal immigrants.
Given these complex and significant risks, investors should maintain a disciplined and diversified strategy.
| Asset Class Summary – 31 December 2024 | 1 Year % Total Return |
|---|---|
| Australian Shares | 11.4 |
| Global Shares (hedged) | 19.6 |
| Global Shares (unhedged) | 29.5 |
| Australian Property Securities | 17.6 |
| Australian Bonds | 2.9 |
| Global Bonds (hedged) | 2.2 |
| Cash | 4.5 |
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