Economic growth continued in the USA in 2024. In contrast, Europe’s economic growth was sluggish. The growth was driven by the service sector, with a more subdued mood in industrials. The USA is expected to continue as a driver of global growth in 2025, especially if the political measures of the new administration do not undermine the economic outlook.
Inflation slowed during 2024, in both the USA and Europe, but in particular in the USA, the inflation outlook took an upward trend at year end. The central banks began to cut interest rates in the summer, following the lead of the European Central Bank. Accelerating inflation and a strong economic outlook are keeping the market’s rate cut expectations low in the USA, while the European Central Bank is anticipated to cut interest rates also in spring 2025.
FIXED INCOME MARKET
Interest rate volatility continued in 2024 in spite of expectations. The year began with expectations of commencing rate cuts, especially in the USA, but as the outlook shifted, market rates rose early in the year. Interest rates began to fall in the summer, but rose again during the latter part of the year as inflation accelerated.
Credit spreads fell during 2024, in both Europe and the USA. This led to strong corporate bond returns during the year. Historically, credit spreads are fairly low, particularly in the USA.
EQUITY MARKET
The return on the global equity markets was extremely strong, just like in 2023. Geographically, the returns yet again focused on the USA. In Europe and the emerging markets, returns were also fairly strong. Once again, the return on Finnish equities remained subdued. AI remained the theme on the equity market, as a result of which US tech companies were the year’s biggest winners. The year saw momentary rotation also into sectors that had experienced weaker returns in earlier years, but there was no definitive change during 2024.