The FTSE 100 is slumping again on Friday as concerns over the global economy gather pace.
As I type, Britain’s blue chip index is down 1.3% from Thursday’s close at 7,381 points. The FTSE 100 has closed lower every day this week as risk aversion on stock markets has increased.
Why has the FTSE 100 dropped again?
The Footsie has fallen in end-of-week trading following the release of more disappointing economic news. In fact, markets are down across Europe after Germany’s central bank slashed the country’s growth forecasts.
Germany’s DAX and France’s CAC40 indices, for instance, were recently 1.6% and 1.7% lower respectively, too. And Italy’s FTSE MIB has fallen a whopping 3.6%.
Growth and inflation worries from Germany
On Friday the Bundesbank took an axe to its GDP forecasts for the next couple of years due to soaring inflation. It now expects the German economy to increase 1.9% in 2022. That’s down down sharply from the 4.2% it had predicted in December.
2023’s growth forecasts were downgraded to 2.4% from 3.2% as well.
The bank warned that “uncertainty about future economic developments is exceptionally high” given the threat of ceasing Russian energy supplies amid the ongoing war in Ukraine. And so it added that economic output could actually “experience a pronounced decline in 2023” if oil and gas flows stop.
As for inflation, the Bundesbank said that it expects consumer price growth to average 7.1% in 2022. That is almost double December’s prediction of 3.6%. The bank raised 2023’s prediction, too, to 4.5% from 2.2%.
Fears over stagflation increase
Today’s news from Europe’s largest economy has soured the mood around the continent even further. Yesterday the European Central Bank (ECB) announced plans to tighten monetary policy in an extra threat to economic growth.
On Thursday the ECB said it would hike rates for the first time in 11 years in July. The bank said a planned increase of 0.25% next month would likely be followed by additional tightening in September.
News over the past couple of days has intensified fears over stagflation (low growth and high inflation). Consumer price inflation in the eurozone soared to 8.1% in May from 7.4% in April.
US inflation data due later
All eyes will now be glued to fresh inflation data from the US at 13.30 GMT. This is expected to show that consumer price growth in the US remained around 40-year highs of 8.3% in May.
Another high reading could worsen fears that the Federal Reserve will have tighten policy more than the market currently expects.
The announcement later today could certainly prompt fresh choppiness on the FTSE 100 and other major indices. Analysts Susannah Streeter of Hargreaves Lansdown comments that “signs that prices had spiralled even higher last month are likely to set off a fresh round of selling,” though she added that “a lower than expected reading could prompt a wave of buying which would top off a volatile week for stocks.”