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European shares fell sharply on Friday, poised for their steepest weekly decline in three years, as investors grew increasingly anxious about a potential global recession after U.S. President Donald Trump unveiled sweeping tariffs targeting key trading partners.
The pan-European STOXX 600 index dropped 1.8% by 0815 GMT, bringing its weekly loss to around 5%, the sharpest weekly downturn since February 2022.
Tariff Impact Deepens ECB Rate-Cut Expectations
Markets were rattled as Trump imposed an effective 20% tariff rate on EU imports earlier this week, sparking widespread concerns over economic fallout. Traders significantly increased bets that the European Central Bank (ECB) will soon respond by lowering interest rates to bolster weakening growth prospects.
Markets are now pricing in a quarter-percentage-point rate cut by the ECB at its upcoming meeting this month, with expectations for at least two additional rate reductions before the end of 2025.
Europe Prepares Retaliatory Measures
In response to Trump’s tariff announcements, France’s government spokesperson stated Thursday that the European Union is preparing reciprocal measures against U.S. imports. The EU plans an initial wave of responses around mid-April, followed by further actions later in the month.
Banks Bear Brunt of Sell-Off
European banking shares—highly sensitive to shifts in the economic outlook—were the hardest hit, plunging around 11% over the past two trading sessions, marking the sector’s worst decline since the onset of the pandemic in March 2020.
German Industry Stalls, Raising Growth Concerns
Economic data on Friday revealed stagnation in German industrial orders for February, despite an upward revision to January’s figures. This suggests that while Germany’s industrial slump might have bottomed out, the path to recovery could be slower than previously anticipated.
The recent optimism surrounding potential German fiscal stimulus had pushed the STOXX 600 to record highs earlier this year, but these gains have swiftly eroded. Investor sentiment has since soured due to escalating concerns over trade-related economic damage, causing the index to retreat 9.1% from its peak reached just one month ago.
