Stock markets across Europe have fallen following weaker than expected economic indicators, falling oil prices, and a warning from the International Monetary Fund stoked fears of a slowing global recovery.
All major European markets fell, with the FTSE 100 in London closing down 1.2% or 73 points at 6091.23, after new data indicated global economic uncertainty and concern over the EU referendum weighed on Britain’s services sector in March, in the latest sign that the UK recovery is losing momentum.
The German Dax was the biggest faller of the major European stock markets, down 2.6%, after factory orders fell unexpectedly as a result of weaker foreign demand.
German industrial orders declined 1.2% in February, well below expectations of a 0.2% rise in Europe’s largest economy, the biggest monthly fall in six months. Stefan Schilbe, economist at HSBC, said the fall “clearly shows that the weak global environment is taking its toll”.
The fragile state of the global economy was further highlighted by falling oil prices – Brent crude at one point hit a one-month low of $37.27 a barrel – and a warning from the head of the IMF, Christine Lagarde, who said in a lecture in Germany that growth was “too slow, too fragile, and risks to its durability are increasing”.
European shares slipped to a six-week low. The FTSEurofirst 300 – featuring Europe’s largest companies – fell 1.9% to its lowest level since 25 February. The French CAC fell 2.2% and the Spanish Ibex was down 2.4% as investors around Europe were left disappointed by data from the eurozone services sector.
Growth in the sector slowed in March according to the Markit PMI survey, and was revised down from an earlier estimate. The headline index fell to a 14-month low of 53.1 last month from 53.3 in February, where anything above 50 indicates growth.
Howard Archer, chief European and UK economist at IHS Global Insight, said: “This is a setback to hopes that the eurozone economy may just be starting to improve after a dreary start to 2016.
“Global economic uncertainties and problems have clearly hampered eurozone growth so far in 2016 not only through limiting exports but also through weighing down appreciably on business and consumer confidence, which has negative implications for employment, investment and consumption decisions.”
In the UK, a closely watched survey of the dominant services sector suggested that progress came to a virtual standstill last month as companies weighed up a combination of risks, including the looming possibility of an exit from the EU.
The sector, which includes restaurants, bars and hotels, experienced the weakest quarter in three years during the first three months of the year, according to the Markit/Cips PMI index.
James Knightley, a senior global economist at ING, said concerns over the possibility of Britain leaving the EU were weighing heavily on the services sector, which accounts for about three-quarters of the UK economy.
“With opinion polls suggesting that the vote will be incredibly close, businesses are likely to act cautiously and not embark on any significant expansion plans until the economic outlook is clearer,” he said. “This means that investment and labour hiring plans will be more limited.”
The March UK services PMI was the latest indication that economic growth has slowed since the beginning of the year.
Chris Williamson, the chief economist at Markit, said that along with equivalent surveys for the manufacturing and construction sectors, the report suggested the economy grew by 0.4% in the first quarter, compared with 0.6% in the fourth quarter of 2015.
“Business confidence remains in the doldrums as concerns about the global economy continue to be exacerbated by uncertainty at home, with nerves unsettled by issues such as Brexit and the prospect of further government spending cuts announced in the budget,” he said.
The report showed a slight improvement in overall activity in March. The headline index edged up to 53.7, from 52.7 in February. Any figure above 50 indicates expansion. However, confidence among companies operating in the sector dipped and new business growth slowed.
Williamson said growth was likely to slow further. “It seems unlikely that March’s upturn in the pace of growth represents the start of a longer term upswing,” he said. “In contrast, the survey data suggest growth is more likely to weaken further in the second quarter.”
Williamson said the prospect of a rise in UK interest rates seemed “a long way off”. The Bank of England has held rates at 0.5% since March 2009.
In better news for the eurozone, retail sales increased unexpectedly in February, by 0.2% compared with January. Growing demand in France and Spain helped offset a fall in Germany, according to the EU statistics office Eurostat.
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