Markets dip over fresh fears on growth

Financial markets slide as slower growth in Germany fuels fresh concerns about a cooling global economy.

Stocks dropped ahead of talks between the French president Nicolas Sarkozy and the German chancellor Angela Merkel in Paris. EPA
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Financial markets slid yesterday as slower growth in Germany fuelled fresh concerns about a cooling global economy.

Stocks dropped ahead of talks between the French president Nicolas Sarkozy and the German chancellor Angela Merkel in Paris focused on how to stop the euro-zone debt crisis spreading.

At the close yesterday the Stoxx Europe 600 index was down 0.29 per cent to 237.56. Frankfurt's DAX was 0.45 per cent lower to 5,994.90, and Paris's CAC-40 fell 0.25 per cent to 3,230.90. The euro also fell across the board against other currencies.

Local markets were also down, with the Saudi Tadawul All-Share Index slipping 1.3 per cent to end at 6,053.72, the Abu Dhabi Securities Exchange General Index falling 0.5 per cent to 2,585.8, and the Dubai Financial Market General Index dropping 0.2 per cent to 1,466.5.

The slide follows volatility in recent weeks because of concerns about the global economy.

The sell-off was triggered by signs of weaker activity in Germany, the euro-zone's largest economy, potentially complicating attempts to stem the area's debt crisis.

German economic growth increased by only 0.1 per cent in the three months to June compared with the previous quarter, Germany's statistical office said yesterday.

Signs of sluggish growth also emerged across the euro zone. The combined GDP of the area's 17 members expanded by 0.2 per cent in the second quarter compared with the first quarter, the EU's official statistics agency said. That meant the economy grew more slowly than at any time since the end of the recession in the same period of 2009.

"We knew that there would be a reversal in the second quarter because of disruption caused by the Japan crisis and strong numbers in the first quarter," said Azad Zangana, a European economist at Schroders.

Discussions between Mr Sarkozy and Mrs Merkel followed growing concerns over a stalling global economy, fuelled in part by a spreading of the euro-zone turmoil in recent weeks.

The European Central Bank spent €22 billion (Dh116.28bn) last week buying Italian and Spanish sovereign bonds.

Some experts say the only way to ensure affordable financing for the area's most financially troubled nations will be to issue joint eurozone bonds. The German government has staunchly opposed the idea and officials in Paris and Berlin said the subject would not be covered at yesterday's talks.

Another catalyst of recent volatility in global markets has been concerns about the US economy since Standard & Poor's downgraded its top-tier "AAA" credit rating less than two weeks ago.

In a positive development for the economy, Fitch Ratings yesterday said it was keeping the US's long-term rating at "AAA", with a stable outlook.

"The key pillars of the US's exceptional creditworthiness remains intact: its pivotal role in the global financial system and the flexible, diversified and wealthy economy that provides its revenue base," Fitch said.

Christine Lagarde, the IMF's new managing director, warned about the risk of a global recovery being derailed yesterday. She urged policymakers to include measures to support economic growth in the short term as they tightened fiscal planning.

"For the advanced economies, there is an unmistakable need to restore fiscal sustainability through credible consolidation plans," Ms Lagarde wrote in the Financial Times. "At the same time we know that slamming on the brakes too quickly will hurt the recovery and worsen job prospects."