FTSE slumps over Germany fears

Friday 10 October 2014

The FTSE 100 Index has continued its slump as fears about the state of the powerhouse German economy lead to a big correction for global stocks.

Leading European markets were down by as much 2%, with the Dax in Frankfurt extending its losses for the week to more than 5% and the FTSE 100 Index testing a new one-year low with a fall of more than 100 points.

Worries about the global economy, particularly in Europe and Asia, have been accompanied by a wave of selling in energy and commodity stocks due to a recent sharp fall in the price of oil.

Fears that Europe's largest economy, Germany, may fall into recession were fuelled yesterday when a report showed its exports sank 5.8% in August, the biggest monthly drop in five years. It triggered Wall Street's worst session of the year last night, with the Dow Jones Industrial Average down by nearly 2%.

Earlier this week, the International Monetary Fund downgraded its growth forecasts for the three largest eurozone economies - Germany, France and Italy - prompting Chancellor George Osborne to warn that the UK economy was facing a "critical moment".

He told the BBC yesterday: "The eurozone risks slipping back into crisis. Britain cannot be immune from that. It's already having an impact on our manufacturing and our exports."

His fears were highlighted today when official trade figures showed that goods exports fell £700 million, or 2.8%, in August to £23.2 billion, with the figure on a three-month basis the largest decline since March.

The FTSE 100 Index has now retreated from near-record territory less than a month ago to its lowest level since October last year. The spread of the deadly Ebola virus has also had an impact on travel stocks, including British Airways owner International Airlines Group.

First Choice owner TUI Travel, which is in the process of merging with its German parent company, was the biggest faller in London today with a decline of 7%. Cruise ship operator Carnival was 4% cheaper.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: "Concerns around the lack of global economic growth are spooking investors. In particular, the situation in China remains unclear, whilst within the eurozone, even the supposed powerhouse of Germany could be staring into another recession. The cocktail of concerns is completed by ongoing geopolitical worries, the possibility of widespread deflation and a commodity glut."

Mr Hunter said third-quarter results due next week could provide some relief but companies will need to comfortably exceed expectations to remove some of the uncertainty which is hanging over markets.