Operating environment, Q4 2024
Economic development in the eurozone remained subdued in the final quarter of 2024. However, economic growth is forecasted to be slightly more favourable in 2025 compared to the previous year. In the United States, economic growth remained strong, highlighting the contrast with weaker development in Europe.
Inflation has eased, but it has not yet reached the target levels set by central banks. Interest rates continued to decline, which revitalised the industrial economic climate. However, geopolitical instability continues to increase market uncertainty.
The fundraising environment for private markets remained challenging in the final quarter of 2024. Fundraising for infrastructure funds was at its lowest level in years. Fluctuations in valuation levels, uncertainty in exit markets, and geopolitical risks have made investors more cautious. According to Preqin, which tracks private market developments, there are a record number of funds in the market, but the total target capital has decreased compared to last year. At the same time, new, non-institutional investors are becoming increasingly interested in investing in the private market.
The renewable energy business environment was divided. Electricity prices vary significantly across different regions in Europe, which impacts the attractiveness of renewable energy investments on a country-by-country basis. The recent rapid development of wind and solar power has also led to a decrease in the selling prices of electricity from these energy sources. For example, the price of solar energy has fallen in Spain, and wind energy prices have decreased in the Nordic countries.
In bioindustry, the political climate has weakened the operating environment for products and solutions focused on sustainability, making market entry more difficult. Commercialisation is further hindered by the prevailing emphasis on cost efficiency and established value chains across many sectors, which makes it challenging to integrate new solutions, even when they are competitive in terms of quality and price.
The demand for bioindustry products is influenced by the prices of EU emission allowances (ETS), which rose to their highest levels at the end of 2024. Despite this, the price level of emission allowances remains lower than previously forecasted. Price development is influenced by factors such as the abundant supply of emission allowances in relation to current demand. The price of coal in the final quarter of 2024 was below the average price for the entire year. At the same time, the prices of domestic pulpwood and fuelwood, used as bioindustry raw materials, remained at record-high levels, although the pace of price increases decelerated toward the end of the year.
The real estate market remains sluggish for the time being. The final quarter of the year was slightly more active in Finland than the previous quarter. However, transaction volumes were nearly 40% lower than in the corresponding period in 2023. The increase in required returns for prime real estate levelled off, and there was little need for write-downs due to higher required returns in similar real estate categories at the end of the year.
Non-institutional investors are becoming increasingly interested in investing in the private market
In the insurance operating environment of Garantia Insurance Company Ltd, economic uncertainty continued to keep consumer confidence well below the long-term average, and activities in the housing market remained subdued. The continuing low volume of housing transactions significantly affected the company’s sales of residential mortgage guarantees. In Finland, the prolonged weak economic situation was also reflected in increased unemployment, but the creditworthiness of the company’s residential mortgage guarantee customers largely remained good, and no significant changes occurred in the risk position of the guarantee insurance portfolio. The housing market showed signs of recovery towards the end of the year. If the positive development continues, the volume of Garantia’s residential mortgage guarantee sales is also expected to take an upward turn.
As a result of subdued economic activity, companies’ willingness to invest remained low and the number of bankruptcies initiated continued on an upward trend. Demand for corporate financing remained modest, but the improvement in business confidence indicators in the latter half of the year can be considered a positive signal. However, the creditworthiness of the corporate counterparties of Garantia’s guarantee insurance portfolio mostly remained stable. The development of the investment market was slightly weaker in the final quarter of 2024 following an exceptionally strong first nine months.