European shares post worst weekly loss since September as recession fears mount

European shares slid on Friday, ending the week sharply lower after major central banks flagged further rate hikes, while economic activity data from the euro zone failed to assuage concerns of a looming recession.

The Europe-wide STOXX 600 index .STOXX closed 1.2% lower on Friday, ending the week with a loss of nearly 3.3%.

The index posted its steepest one-day drop since May in the previous session after the European Central Bank (ECB) joined the U.S. Federal Reserve in saying monetary policy will continue to tighten even at a risk to the economy.

ECB President Christine Lagarde said on Thursday there would likely be more 50-basis-point rate hikes for a period of time and that the central bank was not “pivoting” yet.

The hawkish messages dealt a blow to markets, which had rallied in recent weeks on hopes that signs of cooling inflation would pave the way for major central banks to end their aggressive rate-hike trajectory soon.

“Beyond the inflationary pressures, there is a growth issue at stake,” said Giuseppe Sette, president of AI investment platform Toggle.

“There is a very clear emerging consensus that the risk of recession is a concrete risk for next year. If we have a severe recession next year, earnings are going to fall and valuations are going to be unsustainable.”

Investment bank JPMorgan ramped up its forecast on Thursday for how high euro zone interest rates will go to 3.25% from 2.50%.

Italian ministers lashed out at the ECB as its decision to hike borrowing costs raised the financial pressure on one of the euro zone’s most indebted countries.

Italy’s FTSE MIB .FTMIB slipped 0.2% by close, extending losses for third straight week.

Adding to slowdown concerns, data on Friday showed euro zone business activity in December shrank at the slowest pace in four months, but remained in contraction for the sixth straight month.

UK’s blue-chip FTSE 100 .FTSE fell 1.3% after British retail sales fell unexpectedly in November as high borrowing costs eat into household finances.

Euro zone borrowing costs rose on Friday as investors raised their forecasts on bond yields after the ECB’s commentary.

Healthcare stocks weighed on the STOXX 600, with pharmaceutical companies such as Bayer AG BAYGn.DE and AstraZeneca AZN.L falling 3.8% and 1.8%, respectively.

Industrials .SXNP slid 4.8%, extending losses for their third straight day, followed by rate-sensitive technology stocks.

The telecom sector .SXKP fell 2.5%, dragged down by a 6.5% drop in shares of Tele2 AB TEL2b.ST after Citigroup cut the operator’s price target.

Shares of Games Workshop Group Plc GAW.L jumped 16.2% to the top of the STOXX 600 after the British game developer entered an agreement with e-commerce giant Amazon AMZN.O.