Recession looms as war in Ukraine ‘pushes a fifth of EU businesses to the brink’ Business

Investors are bracing for recession in Europe amid a warning that Russia’s invasion of Ukraine could push nearly a fifth of EU businesses to the brink of collapse.

More than half of investment managers – 54% – now expect the continent’s economy to slip into recession within the next twelve months, according to a Bank of America survey.

This marks a sharp rise in pessimism as central banks prepare to rapidly tighten monetary policy in the face of runaway inflation. In May, only 28% of fund managers said they expected a European recession.

Separately, Brussels’ lending arm has warned that the conflict in Ukraine is likely to trigger a wave of defaults among EU companies. The European Investment Bank has warned that the number of EU companies at risk of default will rise from 10% to 17% as a result of the war in Ukraine.

The Luxembourg-based institution said its modeling showed that rising inflation “could push more Europeans below the poverty line”, reducing private consumption in the 27 countries by 1.1%, the regions of center and southeast being the most affected. He predicted that real economic growth in the EU would now be below 3% for the year.

“A recession could occur, and further trade disruptions or increased economic sanctions would increase the risk to the European economy,” researchers said.

EIB chief economist Debora Revoltella said the bloc needed “clear policies to protect businesses and ensure public investment is fully used to catalyze private investment”.

Fund managers are the most optimistic about Europe’s prospects globally, Bank of America found, but nearly three-quarters of panelists surveyed by the bank – with about $834 billion in assets under management overall – expect the global economy to weaken over the next twelve months. A record 73% expects growth to slow as fears of stagflation are at their highest since 2008.

Fear is growing at the pace of rate hikes. 32% of respondents named “hawkish” central bankers as the biggest risk to markets – a jump from 9% in March. A widespread recession and sustained inflation were seen as the next two main risks.

Investors continue to view the UK as a preferred European investment location. Bank of America analysts said the UK market was “helped by its heavy weighting in energy stocks”.

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This notice was published: 2022-06-14 12:20:09

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