Canada
With inflation firmly within its target range (1-3%), the Bank of Canada (BoC) reduced its target for the overnight rate again in January, cutting the benchmark by a further twenty-five basis points (0.25%) to 3%. The ongoing cuts not only signal the BoC’s view that the recent surge in inflation has been tamed, but also that the Canadian economy continues to register only meagre growth. With the unemployment rate at 6.7%, and real wage growth moderating, consumer spending remained subdued. While falling interest rates have helped bring down bond yields, continued economic and geopolitical anxiety has slowed the descent. Equity markets rallied through 2024, but gains have been challenged in 2025 in light of the above noted uncertainty.
United States
Continuing to defy the odds and the pundits, the U.S. economy maintained its momentum through 2024, ending the year with surprisingly solid GDP and employment results. However, while inflation has fallen sharply from its recent highs and continues to trend in the right direction, its recent spikes higher have raised concerns that the U.S. Federal Reserve (the Fed) may not have completely reined in price pressures. Reflecting this uncertainty, the Fed chose to skip another cut at their January meeting after reducing rates in September (-0.5%), November (-0.25%) and December (-0.25%). With the Trump administration’s proposed tax cuts and higher spending, markets ended 2024 on a tepid note, and have been highly volatile to date in 2025.
Europe
Faced with a weak economy that ended 2024 with less than 1% GDP growth, Europe’s central bank once again cut interest rates in the hopes of spurring spending and investment. However, the outlook for the year ahead is more optimistic, with a rebound in growth expected based on a stronger outlook for export markets in China and North America, and inflation continuing to fall while employment is seen as rising. Germany and France have both seen upheaval on the political front. Along with a change in government in the U.K. last year, the region is poised for an uncertain 2025, complicated further by the ongoing war between Ukraine and Russia. European bourses have experienced solid if mixed returns in comparison to their North American counterparts, driven by technology and financial services stocks.
Emerging Markets
China continues to try to kickstart its flagging economy, with monetary and fiscal policies proving to be largely ineffective in 2024. While Emerging Markets (EM) countries began the year with hopes that the high U.S. dollar would ease, the mighty “greenback” continues to punish these countries, especially those with high debt levels denominated in U.S. dollars. Deeply discounted valuations, falling inflation, and the hope of easing monetary policy in the developed world should help EM equities in 2025, with a hoped for weakening U.S. dollar providing a boost to EM fixed income.
For more insights on the global economy and markets, please refer to RBC Global Asset Management’s Global Investment Outlook – Winter 2025.
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