After the European Central bank announced plans to raise rates to fight surging inflation, and warned of higher inflation and slower economic growth, European stocks tumbled. The Stoxx Europe 600 fell 1.4% lower, the most since May 19th, as technology and real estate lead the way down.

Although the ECB signaled a bigger hike would be coming in the fall, which is a more aggressive path than analysts had predicted, for now it committed to a quarter-point increase in the next month. However, that was the first in more than a decade, and combined with forecasting a faster path for Eurozone prices and a weaker rebound from the pandemic, investors were spooked.

As central banks have turned more aggressive of late, stoking fears of rate hikes and a possible recession, European stocks had been feeling increasing pressure. The mood was only made worse by the war in Ukraine and persisting supply chain disruptions.

Seema Shah, chief strategist at Principal Global Investors said, “With this inflation outlook and the unavoidable path for higher rates, the ECB is facing stagflation threats full-frontal. The strangling hold of desperately high living costs means that Euro area growth will slow through the second half of this year, with recession increasingly likely – particularly now with sharp policy tightening in the near-term horizon.”

Esty Dwek, chief investment officer at Flowbank SA, said that although a slight increate in rates would be  net positive for banks over time, “over-tightening in a precarious growth situation is a risk for the ECB. They will need to acknowledge growth risks in the autumn.”

Anna Stupnytska, global macro economist at Fidelity International said, “It will be difficult for the ECB to execute a rapid return of policy rates into positive territory given the growth and fragmentation constraints. The tightening path will be less steep and shorter than what is currently implied by market pricing.”

Looking at individual stocks, Airbus SE was hurt after a report of weaker deliveries for May and chipstocks such as SML Holding NV and Infineon Technologies AG lost ground after Intel Corp said that a sputtering economy will hurt demand.

Now attention will return to Ukraine, where a sudden end to the war at any point in the coming months could turn everything around overnight.