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FTSE retreats as IMF slashes global growth forecast


(left to right) Tower 42 (NatWest Tower), 8 Bishopsgate, The Leadenhall Building (Cheesegrater) and The Fenchurch Building (The Walkie-Talkie). Picture date: Sunday January 9, 2022.
The city of London viewed from the other side of the river Thames.

European stock markets were muted on Tuesday as the International Monetary Fund (IMF) again downgraded its forecast for global growth this year.

In London, the FTSE 100 (^FTSE) ended flat on the day, retreating from modest gains earlier in the session, while the CAC (^FCHI) tumbled 0.3% in Paris, and the Frankfurt DAX (^GDAXI) was 0.7% lower.

The IMF blamed worse-than-expected inflation for an overall "gloomy and more uncertain" outlook. It now expects the global economy to grow by only 3.2% in 2022, a downgrade from the previous 3.6% forecast.

In April, the IMF had already cut its growth expectations for this year from 4.4% to 3.6%. In 2023, global growth is set to weaken further to 2.9%. Just three months ago, that estimate was 0.7 percentage points higher.

Read more: IMF slashes global growth forecast again citing 'gloomy' outlook

It also slashed its growth forecast for the UK next year, with expectations that it will lag behind other major economies.

UK GDP is now only expected to rise by 0.5% in 2023, the weakest growth in the G7. This is down from April’s forecast of 1.2%, and 2.3% in January.

However, Britain is forecast to see a growth of 3.2% this year, above those of its biggest competitors including both France and Germany.

Elsewhere, European energy ministers met in Brussels and approved a proposal for all EU countries to voluntarily cut gas use by 15% from August to March. The cuts could be made binding in a supply emergency, but countries have agreed to exempt numerous countries and industries.

It followed news of Russian energy firm Gazprom reducing gas flows to the bloc through Nord Stream 1 due to a turbine problem. Ukraine's president Volodymyr Zelensky called the move "gas blackmail" against Europe.

"The gas blackmail of Europe, which only gets worse every month, is needed by a terrorist state to make the life of every European worse," Zelensky said.

He added that it was deliberately intended to make it difficult for countries on the bloc to prepare for winter, without any care for the poverty people may suffer in the colder months as a result.

Natural gas prices surged to the highest level in more than four months on the back of the news, with Benchmark European prices rising as much as 7.9%, extending yesterday's 10% increase.

Read more: Amazon raises Prime subscription fees in UK

Across the pond there was negative movement in the main indices, with the S&P 500 (^GSPC) dipping 1.2% and the tech-heavy Nasdaq (^IXIC) falling 1.7% by the time of the European close. The Dow Jones (^DJI) edged 0.6% lower.

It came as US consumer confidence fell for the third month running, down 2.7 points in July to 95.7, as runaway inflation hits American households.

"Lynn Franco, senior director of economic indicators at The Conference Board, which conducts the survey, said: “The decrease was driven primarily by a decline in the Present Situation Index – a sign growth has slowed at the start of Q3. The Expectations Index held relatively steady, but remained well below a reading of 80, suggesting recession risks persist.

"Concerns about inflation – rising gas and food prices, in particular – continued to weigh on consumers.”

On Monday, Wall Street had an underwhelming session, having hit six-week highs last week.

“There appears to be a reluctance to push things too much higher, as we gear up for a big week of earnings, with the Nasdaq taking the brunt of the declines yesterday, as today’s Fed meeting gets underway,” Michael Hewson of CMC Markets said.

Market sentiment is also cautious ahead of the Federal Reserve's interest rate decision on Wednesday. The US central bank is expected to raise rates by another 75 basis points.

Read more: UK's poorest households forced to cut on food as incomes decline

Stocks in Asia opened higher on Tuesday, with the Nikkei (^N225) in Japan zigzagging between positive and negative at the open. It finished 0.2% lower on the day.

In Hong Kong, the Hang Seng (^HSI) rose 1.7% and the Shanghai Composite (000001.SS) advanced 0.8% led by strength in Chinese tech stocks and Ali Baba’s (BABA) announcement that it would seek a primary listing in Hong Kong.

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