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Dr Shane Oliver | AMP
2024 was like a rerun of 2023 with lots of angst but it turned out okay. The key big picture themes of relevance for investors were:
1. Stronger than feared growth: Yet again the much feared recession failed to materialise. Despite the monetary tightening of 2022 and 2023 and China’s property collapse, global growth in 2024 remained just above 3%. In Australia, despite a “per capita recession”, economic growth remained positive albeit at only around 1% helped by strong population growth, stronger than expected growth in public spending and labour hoarding offsetting severe mortgage pain for some.
2. Global divergence: Within emerging countries, India grew around 6.5%, China grew around 4.8% (which is slow for China) but South America and the Middle East only grew around 2%. And within developed countries, US growth remained strong at around 2.8% but growth was just 0.8% in Europe and around 0.3% in Japan.
3. Further disinflation: Inflation in major countries has fallen sharply from peaks of 8 to 11% in 2022 to around 2 to 3% in 2024. Australia lagged on the way up and is doing the same on the way down.
4. Falling interest rates: It took longer to get there & rates didn’t fall as much as expected at the start of the year but most major central bank started to cut their policy rates. The RBA should start early in 2025.
5. Geopolitical threats were not as worrying as feared: In particular, the conflict in Israel widened to include Lebanon and missile exchanges with Iran but didn’t impact oil supplies and the oil price was little changed, the Cold War with China didn’t produce any major disruptions and Donald Trump’s re-election boosted US shares.
There were a few bumps along the way for shares – notably with an inflation scare in April and a growth scare into August – but they were relatively minor (with brief falls in shares off less than 10%). For diversified investors, 2024 was another strong year:
Just as was the case for 2024 the worry list for 2025 is long and maybe even more threatening given the uncertainty Trump’s policies pose:
These considerations point to at least a high risk of increased volatility after the relative calm of 2024.
However, despite these worries there are several grounds for optimism.
Fourthly, if recession does occur it’s likely to be mild as most countries including Australia have not seen a spending boom that needs to be unwound and traditionally makes recessions deep. And the Chinese government is likely to continue to do just enough to keep growth around the 5% level. Currently, global business conditions surveys are still around levels consistent with okay global growth.
PMIs are surveys of business conditions and confidence. Source: Bloomberg, IMF, AMP
Finally, while Trump’s policies will create a lot of uncertainty and disruption as he uses tariffs and other things as part of a maximum pressure strategy to negotiate better outcomes for the US his first term as President tells us he ultimately wants to see shares up, not down. He was also elected on a mandate to get the cost of living down for Americans, not to push it up. This could ultimately mean more of a focus on his tax and efficiency policies as opposed to his populist measures like tariffs.
Just as trees don’t grow to the sky, 20% plus returns from global shares are not sustainable. So, we expect good investment returns over 2025, but it will likely be a rougher and more constrained ride than in 2024.
The main things to keep an eye on are: interest rates; recession risk; a likely trade war; China’s property market; and the Australian consumer.
All prices and analysis at 9 December 2024. This document was originally published in Livewire on 9 December 2024. This information has been prepared by AWM Services Pty Ltd (ABN 15 139 353 496)(AFSL No. 366121), part of the AMP Group. The content is distributed by WealthHub Securities Limited (WSL) (ABN 83 089 718 249)(AFSL No. 230704). WSL is a Market Participant under the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited (ABN 12 004 044 937)(AFSL No. 230686) (NAB). NAB doesn’t guarantee its subsidiaries’ obligations or performance, or the products or services its subsidiaries offer. This material is intended to provide general advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Past performance is not a reliable indicator of future performance. Any comments, suggestions or views presented do not reflect the views of WSL and/or NAB. Subject to any terms implied by law and which cannot be excluded, neither WSL nor NAB shall be liable for any errors, omissions, defects or misrepresentations in the information or general advice including any third party sourced data (including by reasons of negligence, negligent misstatement or otherwise) or for any loss or damage (whether direct or indirect) suffered by persons who use or rely on the general advice or information. If any law prohibits the exclusion of such liability, WSL and NAB limit its liability to the re-supply of the information, provided that such limitation is permitted by law and is fair and reasonable. For more information, please click here.