EUROPE - Economic recovery in Europe is "running out of steam", and the euro crisis "threatens a global downturn and, likely, a global recession", according to the AXA Property Trust.

Posting annual post-tax losses of £4.38m (€5m) today, chairman Charles Hunter said the UK-based pan-European property fund would in future focus on southern Germany and food retail after writing down its shareholding in the Porto Kali office portfolio - a reflection, he said, of a severe downturn in the regional secondary Dutch office market.

Two years into the recovery, early indicators for the second quarter across the euro-zone and the rest of the EU show lower consumption. Even German growth of 1.3% in Q1 declined in Q2, as consumption contracted and exports fell behind imports.

With history throwing up a 50% probability of a double-dip recession, a fall in GDP growth would typically lead to reduced tenant demand and lower rental values. Although banks are in comparatively good shape, "the problem for the economy is that most businesses do not see any imperative to use that capital to grow and expand their activities", according to the fund.

In sectoral terms, prime office will continue to provide rental value, primarily in central Europe, after a 1.7% rise in rents in Q2 - though yield rises will be marginal. Retail will perform where macro drivers are strongest - that is, primarily in Germany - while industrial is still struggling to absorb 2006—2008 supply against limited new demand.

While the fund acknowledged pockets of potential performance, the fund manager was resolutely pessimistic over the macro outlook.

Despite an improvement in euro-zone GDP growth to 0.8% in Q1, it pointed to polarisation between government bond yields in peripheral and core economies.

"If the euro crisis cannot be contained, it threatens a global downturn and, likely, a global recession," said Hunter. "With the western countries still trying to reduce the sovereign debt incurred in the last recession, a double-dip would not be much more difficult to handle."