European stocks set to log worst year since 2018

LONDON — European markets are on course for their worst year since 2018 as Russia’s war in Ukraine, high inflation and tightening monetary policy hammered risk assets around the world.

The pan-European Stoxx 600 index will start the last trading day of 2022 down more than 12% since the turn of the year, its worst performance since a 13.24% annual decline in 2018. The European blue chip index enjoyed a bumper 2021, jumping 22.25% on the year.

Opening calls on Friday point to losses of 2 points for the U.K.’s FTSE 100, a fall of 12 points for the CAC 40, while the German DAX is set to slide 18 points.

Economies around the world began the year still trying to emerge from the Covid-19 pandemic, with persistent lockdowns in China and other lingering supply bottlenecks forming what was now infamously mischaracterized by the U.S. Federal Reserve in 2021 as “transitory” inflationary pressure.

Russia’s unprovoked invasion of Ukraine in February, and subsequent weaponization of its food and energy exports in the face of sweeping sanctions by Western powers, sent food and energy prices skyrocketing and compounded this pressure, helping to send inflation to multi-decade highs across many major economies.

The cost-of-living crisis arising from soaring energy bills for businesses and consumers eventually began to weigh on activity, while the Fed and other major central banks were forced to tighten monetary policy with aggressive hikes to interest rates in order to rein in inflation.

However, these efforts to suppress demand weighed heavily on already faltering economies. The U.K. is projected to already be in what will be its longest recession on record, while a downturn in the euro zone is also seen as highly likely.

With the war in Ukraine showing no sign of abating and China in the process of reopening its economy as it ends three years of stringent Covid measures, investors are looking ahead with some trepidation to 2023.

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