Equity weakness tends to precede dips in economic activity, so the market’s recent slump bodes badly for gross domestic product (GDP) growth this year, research from Societe Generale shows.
“A decline in equity prices is bad news for the economy through the wealth effect, funding conditions and a confidence factor, including job security,” SG’s Michala Marcussen says in a note.
“As a rule of thumb, a durable 10 percent decline in the equity market trims GDP growth by 0.8 percentage points in the U.S. and 0.3 percentage points in the euro area.”
Euro STOXX 50 has shed around a fifth of its value since March and is now down 10 percent since the start of the year.
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