Investors retreated from European stocks funds this week, as Russia’s invasion of Ukraine threatens to crush growth in the region and pump up inflation.

Net outflows from European equities hit $6.7bn in the week to March 2, the highest in five years, EPFR data collated by Bank of America show.

“EU stagflation looks highly likely,” BofA’s chief investment strategist Michael Hartnett said in a note on Friday, referring to the combination of weak economic growth and high inflation that he expects to follow the outbreak of war between Russia and Ukraine.

“Prolonged conflict means weaker growth, higher uncertainty and lower asset prices,” the bank said in a separate note. Europe’s Stoxx 600 index fell 7 per cent this week, while Germany’s Dax and France’s Cac 40 dropped 10 per cent.

The US bank’s forecast comes as Russia’s invasion of neighbouring Ukraine enters its second week, with cities including Kyiv and Kharkiv under heavy fire and the civilian death toll mounting.

Russia accounts for roughly 10 per cent of global oil production and supplies 40 per cent of the EU’s gas, meaning any future sanctions placed on the country’s largest fossil fuel groups could further inflate prices, which have already soared to record highs. A weaker euro accentuates that rise in prices still further.

Prices for coal, aluminium and wheat, all of which are exported in vast quantities by Russia, have also soared in recent weeks. Rising prices, along with western sanctions on Moscow and the rising risk of “financial market accidents”, now threatened a global recession, Hartnett said.

The US economy, despite being less exposed to the conflict than European markets, nonetheless remained vulnerable, Hartnett added, noting that Wall Street’s S&P 500 index fell 40 per cent from its peak in the months following the oil price shock induced by the Yom Kippur war of 1973.

BofA’s sombre analysis stood in stark contrast to the outlook proffered by analysts at UBS, who on Friday said in a note that because global growth remained above trend, a recession was unlikely even if oil prices were to rise to $125 per barrel and stay at such levels for two quarters.

The analysts acknowledged, however, that commodity markets were “ill prepared” to handle additional supply disruptions stemming from the conflict in Ukraine.