Shares and euro fall as EU warns of ‘substantial’ risks

European shares and the euro fell as the EU cut back its growth outlook, citing “substantial” risks from trade wars, a slowing Chinese economy, and the uncertainty of Brexit.

In its winter economic survey, the commission pared back forecasts for all the major European economies, as well as Ireland, and warned that some eurozone countries face their finances again being disrupted by weak banks.

The German economy will grow this year by 1.1%, down sharply from its previous autumn forecast, as faltering world growth weighs on exports; the French and UK economies will both grow by 1.3%; while the Italian economy, which fell into recession late last year, will grow 0.2%, “sizeably less than anticipated in the autumn forecast”, the EU said.

Growth in Ireland’s economy will slow to 4.1% this year and 3.7% in 2020, according to the new forecasts, but the outlook may still rest on “unpredictable” multinationals.

Uncertainty “relates primarily to the terms of the UK’s withdrawal from the EU”, it said.

“As a highly open economy, Ireland is also particularly exposed to changes in the international taxation and trade environment. The huge impact of the often unpredictable activities of multinationals could drive headline growth either up or down,” the commission said.

Major stock market indices fell across Europe.

Germany’s Dax slid almost 2.4%, France’s Cac fell 1.5%, while London’s Ftse-100 was down by almost 1%.

In Ireland, shares in Bank of Ireland and Smurfit Kappa fell by around 5%. The euro fell to 87.54 pence.

The forecasts sent both European shares and the euro “sharply” lower, said Joshua Mahony at IG.

“The EU forecast of 1.4% inflation adds a second element to dictate a much more dovish expectation for future ECB decision-making in the year ahead,” he said.

Meanwhile, Bank of England governor Mark Carney warned of the “fog of Brexit” as it predicted 1.2% growth this year.

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