Ukraine war to push Europe into recession, say investors

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

More than half of investment managers – 54pc – are now expecting the continent’s economy to enter recession in the next 12 months, according to a Bank of America survey.

It marks a sharp pick-up in pessimism as central banks prepare to tighten monetary policy rapidly in the face of rampant inflation. In May, just 28pc of fund managers said they expected a European recession.

Separately, Brussels’ lending arm warned that the Ukraine conflict is likely to spark a wave of defaults among EU businesses.

The European Investment Bank warned that the number of companies in the EU at risk of default will soar from 10pc to 17pc as a result of the war in Ukraine.

The Luxembourg-based institution said its modelling showed rising inflation “could push more Europeans under the poverty line”, reducing private consumption across the 27 countries by 1.1pc, with central and south-eastern areas most affected.

It predicted real economic growth across the EU would now be below 3pc over the year. “A recession could happen, and further trade disruptions or increased economic sanctions would increase the risk for the European economy,” researchers said.

Debora Revoltella, the EIB’S chief economist, said the bloc needed “clear policies to protect firms and ensure that public investment is fully used to catalyse private investment”.

Money managers are most downbeat about Europe’s prospects globally, Bank of America found, but nearly three quarters of panellists surveyed by the bank – with around $834bn (£690bn) of assets under management in total – expect the global economy will weaken over the next 12 months.

A record 73pc expect growth to slow, with stagflation concerns running at their highest rate since 2008.

Fear is building over the pace of rate rises. Thirty-two per cent of respondents named “hawkish” central bankers as the biggest risk to markets – a leap from 9pc in March. A broad-based recession and sustained inflation were seen as the next two biggest risks.

However, investors continue to back the United Kingdom as a preferred European investment location.

Bank of America analysts said the UK market was “helped by its large weighting of energy stocks”.