3 minUSA remains the locomotive of the global economy
Guy Wagner Growth figures for the fourth quarter of 2024 confirm the USA's current position as the locomotive of the global economy. Although US GDP grew at an annualised rate of just 2.3% over the last three months of last year, domestic consumption once again stood out, posting a 4.2% increase, note Guy Wagner and his team in their latest monthly market report "Highlights".
“The overall growth rate was held back by the normalisation of private investment after two consecutive quarters of strong growth, and weak inventories,” says Guy Wagner, Chief Investment Officer (CIO) of the asset management company BLI - Banque de Luxembourg Investments. Over 2024 as a whole, GDP grew by 2.8%, compared with 2.9% in 2023. In the Eurozone, GDP stagnated in the fourth quarter. Of the 4 main economies, only Spain posted a positive growth rate. “Nevertheless, the stagnation of the zone as a whole somewhat exaggerates the weakness of activity, due to an unfavourable basis of comparison driven upwards at the end of the third quarter by transitory factors.” Despite persistent weakness in the property sector, China achieved its official target of 5% annual GDP growth, thanks in particular to the strength of exports. In Japan, economic growth in 2024 could prove negative, due to the adverse impact of high inflation on household purchasing power.
A resilient US economy, stable inflation and the prospect of a business-friendly US administration supported stock prices. Guy Wagner
Inflation has been stagnating for several months
After falling significantly from the record levels reached in 2022, inflation has been stagnating for several months. In the United States, the overall inflation rate rose from 2.7% in November to 2.9% in December. In the Eurozone, the headline inflation rate rose from 2.4% in December to 2.5% in January.
ECB cuts its deposit rate
In line with expectations, the US Federal Reserve left the target range for the federal funds rate unchanged at 4.25% - 4.50% at its first meeting of 2025. “Given the robust behaviour of the labour market and the tenacity of inflation, monetary policymakers felt in no hurry to continue their adjustment towards a less restrictive monetary policy,” explains the Luxembourgish economist. In the eurozone, on the other hand, the European Central Bank cut its deposit rate by 25 basis points to 2.75%. Confident that the disinflation process would continue, monetary authorities continued to loosen policy in the face of weak economic activity. In contrast, the Bank of Japan raised its main policy rate by 25 basis points to 0.5%, cautiously resuming the normalisation of monetary policy begun in July last year.
Long-term interest rates ending 2024 near annual highs
In January, long-term interest rates ended the month virtually unchanged. The resilience of both growth and inflation in the USA prevented an easing in long-term rates after their significant rise in the fourth quarter of last year. While the benchmark 10-year rate decreased in the USA, it grew in Germany, France, Italy and Spain, albeit only slightly in some cases.
Equity markets continue to perform well
After two consecutive years of strong gains, equity markets continued to perform well in January. “A resilient US economy, stable inflation and the prospect of a business-friendly US administration supported stock prices.” Although the technology sector was affected by the announcement of a new Chinese language model based on artificial intelligence, with performance comparable to or even better than that of the American leaders, the overall upward trend of the markets remained in place. For once, Europe outperformed the United States, making up a small part of the enormous backlog accumulated over the past few years. “At sector level, communication services, healthcare and finance posted the best performances, while consumer staples, real estate and technology recorded the least favourable trends,” concludes Guy Wagner.
