The euro is struggling to recover after tanking to a near two-year low against the dollar in response to the ECB’s growth forecast cut (PHILIPPE HUGUEN)

London (AFP) – World stock markets tanked and the euro struggled to recover Friday as the European Central Bank’s decision to slash its growth and inflation forecasts fuelled pessimism over the global outlook.

The announcement — and an extension of stimulus — is the latest warning of a lean road ahead after China unveiled a target for growth that would be its slowest in three decades and as the US Federal Reserve indicated it will hold off any fresh rate hikes this year.

Asia joined the selloff on Friday after data showed China’s trade fell off a cliff last month.

Exports plunged more than 20 percent last month, while imports were also sharply down — both missing expectations by some margin.

The news also threw a spanner in the works for investors in the region — particularly Shanghai — who have been chasing a rally fuelled by optimism that China and the United States will hammer out a deal to end their trade war.

– ‘Selloff continues apace’ –

“The stock market selloff has continued apace today, with a sharp drop in Chinese exports leading to further weakness across the board,” said IG analyst Joshua Mahony.

While the Chinese figures were skewed by the Lunar New Year break, they highlight ongoing troubles in the world’s number-two economy, which is growing at its slowest pace for three decades.

“Shaken by the collapse in Chinese trade, the European markets headed into Friday afternoon in a sorry state,” said Spreadex analyst Connor Campbell.

In midday deals, London’s FTSE 100 index dived 1.0 percent in value, with miners hit hard by worries over demand from key commodity consumer China.

In the eurozone, Frankfurt fell 0.7 percent and Paris shed 0.5 percent in early afternoon deals, extending Thursday’s ECB-fuelled losses.

The European single currency meanwhile languished close to a near two-year low of $1.1177 that was struck the previous day.

The ECB said Thursday that eurozone interest rates would be stuck around historic lows until the year’s end at best, with bank boss Mario Draghi warning the eurozone was “coming out of, and maybe we still are in a period of continued weakness and pervasive uncertainty”.

Draghi cited “factors… mostly of external source”, including “the threat of protectionism” and “geopolitical considerations”, and analysts pointed out that the eurozone was in a precarious position.

– ECB ‘sounds alarm bells’ –

The Frankfurt-based institution added it would also offer new low-cost loans to banks, to stimulate lending conditions.

Investors however focused on the darkening economic outlook, which has remain shrouded in gloom this year over Brexit, China’s slowdown, and the ongoing global trade war.

“Rather than ‘Brexit uncertainty’ we should be talking about ‘Eurozone uncertainty’, given that Germany is flirting with recession and Italy is in recession,” VTB Capital analyst Neil MacKinnon told AFP.

“The ECB has already sounded the alarm bells for the eurozone,” he added.

Oil prices were down around one percent as the prospect of a global slowdown weighed on expectations for demand for the black gold.

– Key figures at 1200 GMT – 

London – FTSE 100: DOWN 1.0 percent at 7,087.32 points

Frankfurt – DAX 30: DOWN 0.7 percent at 11,440.38

Paris – CAC 40: DOWN 0.5 percent at 5,242.57

EURO STOXX 50: DOWN 0.7 percent at 3,287.24

Tokyo – Nikkei 225: DOWN 2.0 percent at 21,025.56 (close)

Hong Kong – Hang Seng: DOWN 1.9 percent at 28,228.42 (close)

Shanghai – Composite: DOWN 4.4 percent at 2,969.86 (close)

New York – Dow: DOWN 0.8 percent at 25,473.23 (close)

Euro/dollar: UP at $1.1217 from $1.1193 at 2200 GMT

Dollar/yen: DOWN at 111.16 yen from 111.58 yen 

Pound/dollar: DOWN at $1.3073 from $1.3085

Euro/pound: UP at 85.81 pence from 85.55 pence

Oil – Brent Crude: DOWN $1.20 at $65.10 per barrel

Oil – West Texas Intermediate: DOWN 93 cents at $55.73

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