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Recession looms as Ukraine war ‘pushes fifth of EU companies to the brink’

Investors brace for a recession in Europe while warning that Russia’s invasion of Ukraine could push almost a fifth of EU companies to the brink of collapse.

More than half of investment managers — 54 percent — now expect the continent’s economy to enter a recession in the next 12 months, according to a Bank of America survey.

It marks a sharp rise in pessimism as central banks prepare to tighten rapidly amid runaway inflation. In May, just 28 percent of fund managers said they expected a European recession.

Separately, the Brussels lender warned that the Ukraine conflict is likely to trigger a wave of defaults by EU companies. The European Investment Bank warned that the number of companies at risk in the EU would rise from 10 to 17 percent as a result of the war in Ukraine.

The Luxembourg-based institution said its modeling shows that rising inflation “could push more Europeans below the poverty line”, reducing private consumption by 1.1 percent across the 27 countries, with central and south-eastern areas hardest hit be. It forecast that real economic growth across the EU for the year would now be below 3 percent.

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

Debora Revoltella, the EIB’s chief economist, said the bloc needed “clear guidelines to protect businesses and ensure public investment is fully used to boost private investment”.

Money managers are the most pessimistic about the global outlook for Europe, Bank of America found, but nearly three-quarters of the panelists surveyed by the bank — with around $834 billion in total assets under management — expect the global economy to pick up in the next few years twelve months will weaken. A record 73 percent expect growth to slow, with stagflation fears at their highest since 2008.

Fear is building over the pace of rate hikes. 32 percent of respondents named “hawkish” central bankers as the biggest risk to markets — a jump from 9 percent in March. A broad-based recession and persistent inflation were seen as the next two biggest risks.

Investors continue to look to the UK as the preferred European investment location. Bank of America analysts said the UK market was “supported by its large weighting in energy stocks”.

https://www.telegraph.co.uk/business/2022/06/14/recession-looms-ukraine-war-pushes-fifth-eu-companies-brink/ Recession looms as Ukraine war ‘pushes fifth of EU companies to the brink’

Russell Falcon

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