Stock markets across Europe have risen on hopes of a stimulus after Germany’s central bank hinted there was a risk of recession.
The FTSE100, Germany DAX, France’s CAC and Italy’s MIB indexes were all up by more than 1% on renewed hopes of European governments increasing spending to boost growth.
It comes after the Bundesbank said Germany’s GDP may have continued to shrink over the summer, with its latest data suggesting industrial production fell.
The central bank pointed to a big drop in sentiment indicators for manufacturing firms in its monthly report.
It said: “Overall economic performance could again decline slightly. The main reason for this is the continuing downturn in industry.”
Stock markets were lifted on renewed hopes that Germany would ditch its obsession with running a balanced budget after its finance minister Olaf Scholz said the country could deploy up to €50bn (£45.82bn) “with full force” to counter any future economic crisis.
There were already fears of a recession after Germany reported economic contraction for the second quarter of this year.
A recession is defined as two consecutive quarterly contractions.
The export-reliant economy has been particularly exposed to the US-China trade war and uncertainty caused over Brexit.
President Donald Trump dismissed concerns of recession over the weekend and offered an optimistic outlook for the economy after last week’s steep drop in the financial markets.
Mr Trump told reporters in Washington: “I don’t think we’re having a recession.
“Our consumers are rich. I gave a tremendous tax cut and they’re loaded up with money.”
Yet despite signs that major economies would act to support growth, some analysts cautioned that the boost to markets from expectations of stimulus was fragile.
Chief market strategist at CMC Markets, Michael Hewson, said: “You have just got a little bit of portfolio readjustment, a resetting of expectations. The big question is whether it can last.
“Talking about fiscal stimulus in Germany is one thing, doing it is something else.”