FTSE suffers worst quarterly fall since 2002 as fears rise of “Great Stagnation”

The FTSE fell 13.7 per cent since the start of July - the worst quarterly fall since Q3 2002 and the fourth worst in its history, reports Shamik Das.

The FTSE fell 13.7 per cent since the start of July – the worst quarterly fall since Q3 2002 and the fourth worst in its history.

Markets across Europe fell, Frankfurt’s DAX and Paris’s CAC 40 both losing more than a quarter of their value over the past three months, the result of poor growth everwhere, the spread of the eurozone debt crisis, and a lack of global leadership. There were also warnings today the global economy faces a “great stagnation”.


On the quarterly slump, the Telegraph’s Angela Monaghan explains:

The last time the index fell more sharply was the third quarter of 2002, when the UK’s blue-chips were down 20pc in the midst of the dotcom crash. On Friday The FTSE 100 closed down 68.36 at 5128.48.

The poor three-month performance was echoed across key European markets, with the CAC 40 in Paris down 25.1pc over the third quarter and the DAX in Germany 25.4pc lower. In the US, the Dow Jones was on course to post a third quarter fall of 11pc.

Adding of the eurozone crisis:

The latest data from the eurozone showed annual inflation jumped unexpectedly to 3pc in September from 2.5pc in August, despite a worsening growth outlook. Economists had forecast no change.

Separately, economists at JP Morgan said they now believed the eurozone would slide into a recession in the fourth quarter of this year, which would last through next summer. “At first blush, the recession that we look to be sliding into now looks more like the 2008/09 experience,” said David Mackie at JP Morgan.

“Instead of a monetary policy shock, the region is experiencing a confidence shock – confidence in sovereign solvency – which is being amplified by a still vulnerable financial system.”

While on the global picture, the BBC’s Jamie Robertson points out:

Following all the violent swings in equity markets since the sharp falls at the beginning of August, the main markets have not really moved outside fairly narrow ranges: the FTSE between 5,000 and 5,400 and the Dow between 10,800 and 11,600.

The Nikkei, the Dax and the Cac 40 have been gradually trending downwards by about 6-10% over the past two months. This is almost entirely due to uncertainty over the debt crisis and the fate of the eurozone. However, even if there is no further bad news on that front, things are likely to get very active for individual companies.

Many of them, particularly ones that move in tandem with the economic cycle such as those in mining, retail, the auto sector and manufacturing, are trading on values that imply double digit growth.

And in tomorrow’s FT, Jamie Chisholm reports (£):

Global risk assets are set to end a miserable quarter in lacklustre fashion as recent rare pieces of good news on the US economy and eurozone debt crisis are submerged by the strong undercurrent of investor nervousness.

The FTSE All-World equity index is down 1.8 per cent, and commodities are lower, with Brent crude off 0.9 per cent to $103.04 a barrel. “Core” sovereign debt is in favour, softening yields. The Asia-Pacific region has had a weak day, dipping 0.8 per cent; the FTSE Eurofirst 300 is suffering a loss of 1.1 per cent; and Wall Street’s S&P 500 is off 1.3 per cent.

Traders can be excused a moment of reflection given the torrid time they have endured over the past three months. Worries about a slowing global economy and headlines relating to festering eurozone fiscal woes have regularly caused sharp lurches in sentiment.

Worryingly, however, the news may be about to get worse. Much worse.

Goldman Sachs warned today that the global economy is heading into a “Great Stagnation”, during which we would experience long periods of sluggish growth of about 0.5%, low inflation, rising and sticky unemployment, stagnant house prices, and lower returns on shares. Their economists calculate there is a 40% chance of this happening.

Having examined 150 years of macroeconomic history, Goldman found the probability of stagnation much higher after financial crises, explaining:

“Trends in Europe and the US are so far still following growth paths that would be typical of stagnations…

“Given those risks, whether these countries manage to avoid a ‘Great Stagnation’ by a pick-up in the recovery is likely to depend on policy being able to restore confidence and putting in place reforms that can decisively jolt growth.”

Further proof of the pressing need for the government to put aside dogma, follow the evidence and change their minds on Plan B before it’s too late.

See also:

Look Left – “Six weeks to save the euro” warns OsborneShamik Das, September 23rd 2011

The West’s lost decade has begunCormac Hollingsworth, August 18th 2011

Rich List 2011: Charity down and inequality upDuncan Exley, May 9th 2011

Expansionary fiscal contraction and the emperor’s clothesGeorge Irvin, November 13th 2010

Business confidence down most among SMEsShamik Das, August 23rd 2010

22 Responses to “FTSE suffers worst quarterly fall since 2002 as fears rise of “Great Stagnation””

  1. Ciaran Wells

    FTSE suffers worst quarterly fall since 2002 as fears rise of “Great Stagnation”: http://t.co/VLtlj8U6 reports @ShamikDas

  2. pete brookes

    FTSE suffers worst quarterly fall since 2002 as fears rise of “Great Stagnation”: http://t.co/VLtlj8U6 reports @ShamikDas

  3. Νέα Νέμεσις Εργασίας

    FTSE100 fared even worse in 2002 under #Labour, says @leftfootfwd http://t.co/ungRgRnn

  4. Alex Braithwaite

    FTSE suffers worst quarterly fall since 2002 as fears rise of “Great Stagnation”: http://t.co/VLtlj8U6 reports @ShamikDas

  5. Alan Cowan

    FTSE suffers worst quarterly fall since 2002 as fears rise of “Great Stagnation” | Left Foot Forward http://t.co/17Dh6utw

  6. Alex Braithwaite

    RT @leftfootfwd: FTSE suffers worst quarterly fall since 2002 as fears rise of “Great Stagnation” http://t.co/HJ0oOsXz

  7. GoldHoncho

    FTSE suffers worst quarterly fall since 2002 as fears rise of “Great …: The FTSE fell 13.7 per cent since the … http://t.co/t0lSZHFb

  8. GoldHancho

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  9. GoldTradeHancho

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  10. GoldTreeHancho

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  11. False Economy

    FTSE suffers worst quarterly fall since 2002 as fears rise of “Great Stagnation”: http://t.co/VLtlj8U6 reports @ShamikDas

  12. Antje Bormann

    FTSE suffers worst quarterly fall since 2002 as fears rise of “Great Stagnation”: http://t.co/VLtlj8U6 reports @ShamikDas

  13. Knut Cayce

    RT @leftfootfwd: FTSE suffers worst quarterly fall since 2002 as fears rise of “Great Stagnation” http://t.co/rgvHSJbC

  14. Robert the crip

    How to get out of a banking crises, as a chap said on TV who works in Finance this has been the best period for us since the 1930, we are making millions and millions.

  15. Dave Citizen

    Average profit levels and the share values they prop up will continue to fall as a result of three factors:

    1 Annual profits have been inflated on the back of wasteful but more profitable ‘consumption’ oriented economic growth.
    2 Total world consumption has expanded to a point where environmental limits are increasingly becoming a constraint.
    3 Capitalism’s powerful productive dynamics are being stifled by a parallel characteristic of the concentration of capital, property and productive assets in the hands of a tiny minority who then act to defend what they’ve gained.

    Ordinary people in rich countries like Britain are at a crossroads – to the right is a gradual worsening of living standards for the many to prop up the profit levels that continue rewarding a few. To the left is a need to wake up to the fundamental nature of changes needed. Based on Ed Milliband’s recent speech, I think he gets it – not sure about much of the Labour party or the rest of the country yet though.
    Lucky we can count on our media to fight for the interests of ordinary people rather than the few……not!!

  16. Robert the crip

    Does he get it or has the speech writer got it, that’s the problem with people right now, New labour promised a new world a new type of Politics what did we get.

    I think most people get the idea’s of Newer labour do we believe it, because I suspect Miliband will swing one way or the other as he sees the polls

  17. David Taylor

    FTSE suffers worst quarterly fall since 2002 as fears rise of “Great Stagnation”: http://t.co/VLtlj8U6 reports @ShamikDas

  18. Kevin Richards

    Bungle says wot shall we do now George FTSE suffers worst quarterly fall since 2002 as fears rise of “Great Stagnation” http://t.co/A0qZxrFT

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