European stocks risk worst year since 2008

EUROPEAN stock markets are facing their worst year since the global financial crisis as soaring inflation and Vladimir Putin’s threat to throttle gas supplies leave the Continent on the brink of recession.

Analysts at Goldman Sachs expect the pan-european Stoxx 600 Index to end the year 20pc below where it started.

That would mark the worst performance since the 46pc drop at the height of the financial crisis in 2008.

The bleak prognosis comes as Europe faces soaring inflation and the uncertainty over energy supply as winter approaches.

The scale of the inflation crisis facing Europe was highlighted by the European

Central Bank’s decision to raise interest rates by 50 basis points this week – pulling the region out of its era of negative rates with the biggest rise in more than 20 years.

But the move, which was the first time the ECB has raised rates for more than a decade, risks dampening economic growth and pushing the region into a recession.

Meanwhile, fears that Mr Putin will turn off the taps are lingering even after flows resumed through the Nord Stream pipeline this week. The resignation of Italy’s prime minister, Mario Draghi, has also set the scene for months of political turmoil.

Goldman Sachs is one of the most pessimistic banks about the outlook for European stocks but is not alone in predicting a steep decline. UBS expects the benchmark European index to slump 16pc in 2022.

Sutanya Chedda, a strategist at UBS, said: “The anticipation of rising headwinds over the coming quarters presents a significant change to the growth-inflation mix.”

European shares are down 13pc so far this year, although they have come back from an 18-month low hit earlier this month.