Shares fall as Germany avoids slump

Shares fall as Germany avoids slump

New figures showed Germany narrowly avoided recession but European shares slid nonetheless on fears that the US-China trade conflict was still inflicting a lot of damage to the world growth.

The Stoxx Europe 600 Index dipped 0.3% and the Ftse-100 Index fell 0.7% even as hopes lifted for a breakthrough between Washington and Beijing.

“However, despite the German economy avoiding a recession, this feeble growth is likely to continue unless there is a breakthrough from ongoing trade negotiations between the US and China,” said Joshua Mahony, senior market analyst at online broker IG.

Germany’s export-focused economy has been badly hit by the global trade wars.

Sterling continued to hold onto its recent gains despite data showing that UK retail sales fell again in October, Mr Mahony said.

Meanwhile, ECB vice president Luis De Guindos said that Europe faced only a “very low” risk of recession, but he called on all eurozone governments, not just those with fiscal surpluses, to help revive the region’s economy.

However, Europe’s growth remained “below potential”, he said, adding that the ECB needed “to pay close attention” to the situation.

He said authorities needed to confront the risk of ‘Japanification’ which is a prolonged period of low growth and low inflation if measures were not taken to stimulate the economy.

However, he also said the term was an over-simplification due to the differences between Japan and Europe, including Europe not having a credit bubble and having more fiscal room to manoeuvre than Japan had in the past.

“Now our party line is more or less that countries that have space should do more and countries that do not have fiscal space should continue reducing the public deficit. That position, the logical one, in consideration of the set of rules that we have now, is not enough,” he said. That suggests the need for a more comprehensive, bloc-wide plan.

Mr De Guindos said the ECB and other central banks around the world will need to expand their ‘toolkit’ in the sense of doing more than conventional monetary policy usually entails.

Additional reporting Reuters

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