German share price index DAX graph is pictured at the stock exchange in Frankfurt
The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, June 22, 2022.

European shares dropped on Thursday after a survey showed euro zone business activity slowed significantly in June, adding to fears of a sharp economic downturn, while sliding oil and metal prices hit commodity-linked stocks.

The continent-wide STOXX 600 index dropped 1%, with miners shedding 2.6% to hit an over six-month low as copper and other metals extended recent declines on growing fears about a recession. [MET/L]

Economically sensitive sectors including banks and automakers fell nearly 2%, while oil & gas stocks slipped 1.0%. [O/R]

An S&P Global survey showed euro zone business growth slowed significantly this month, and by much more than expected, as consumers concerned about soaring bills opted to stay at home and defer purchases to save money.

"European assets will remain under stress until inflation recedes, and global growth momentum reaccelerates," BCA Research analysts wrote in a note.

"While the ECB has ratcheted up its hawkish rhetoric and will do whatever it takes to overcome inflationary pressures, this will be a headwind to an already brittle economy."

The European Central Bank (ECB) will likely raise its deposit rate above zero for the first time in a decade in September, according to most economists polled by Reuters.

Adding to the downbeat mood, Federal Reserve Chair Jerome Powell said on Wednesday the U.S. central bank is not trying to engineer a recession to stop inflation but it is fully committed to bringing prices under control even if doing so risks an economic downturn.

Norway's central bank raised its benchmark interest rate by 50 basis points on Thursday, its largest single hike since 2002.

The benchmark STOXX 600 has shed nearly 19% since hitting a record closing high on Jan. 5, with the session's losses putting it close to confirming a bear market, or 20%, decline from a recent peak.

Germany's DAX, France CAC 40 and Italy's FTSE MIB are all in a bear market.

German real estate group Aroundtown tanked 9.1% after J.P. Morgan downgraded the stock to "underweight", while telecoms towers group Vantage Towers dropped 4.6% after Morgan Stanley cut its rating to "equal-weight".