Europe close: Stocks drop on IMF global downgrade, German industrial data
European stocks finished the session in the red after the International Monetary Fund (IMF) downgraded its global growth forecasts and German industrial production fell more than expected.
The IMF now expects world growth to come in at 3.3% in 2014, down one tenth of a percentage point from its July estimate. In 2015 the organisation predicts growth of 3.8%, down by two tenths of a percentage point from earlier expectations.
The IMF cited the failure of countries to recover strongly from the worst recession of the postwar era.
Separately, industrial output in Germany fell 2.8% year-on-year in August following a 2.7% increase the month before. Analysts had been expected a 0.5% drop.
“August’s big drop in industrial production all but confirmed that German industry is back in recession and underlined the need for both the European Central Bank (ECB) and the German government to give the Eurozone’s biggest economy much more policy support,” Capital Economics said.
Investors are concerned that the ECB’s asset-purchase programme might not be enough to address the weak economy and low inflation.
Against this backdrop, German Bundesbank President Jens Weidmann has criticised the ECB’s decision to buy private-sector bonds in an interview with The Wall Street Journal.
He also expressed his opposition to purchasing government bonds, signalling his unwillingness to back additional stimulus measures to combat weakness in the Eurozone economy.
Weidmann said European Commission should consider rejecting France’s 2015 budget and has rejected calls from the IMF for Germany to cut taxes or boost public spending.
Schroders, Rio Tinto
Schroders declined as Bank of America’s Merrill Lynch cut its rating on the London-based company to ‘underperform’ from a ‘buy’.
Rio Tinto advanced on news it rejected in August a merger approach from Glencore and has had no further contact over a potential deal.
Cairn Energy rallied as the Scottish oil explorer said it has discovered oil at its FAN-1 well, offshore Senegal.
The euro fell 0.17% to $1.2633.
Brent crude futures dropped 1.3% to $91.57 per barrel, according to the ICE.