Bota Posted on 2024-11-20 13:56:00

ECB Fears Effect of Trump Tariffs - Outlook for Economic Growth Cloudy, According to Two Officials

From Dorian Koça

ECB Fears Effect of Trump Tariffs - Outlook for Economic Growth Cloudy,

The European Central Bank's two top policymakers said they were more concerned about the damage new US trade tariffs would do to economic growth in the eurozone than any impact on inflation.

Investors and policymakers around the world are awaiting details of US President-elect Donald Trump's new trade policy as he made protectionism a key element of his pitch to voters during the campaign.

ECB Vice President Luis de Guindos and Bundesbank President Joachim Nagel stressed the hit the new trade restrictions would have on manufacturing, while they sounded more confident about the inflation outlook.

"The balance of macro-risks has shifted from concerns about high inflation to fears over economic growth," de Guindos said. According to him, the growth outlook is clouded by uncertainty regarding economic policies and the geopolitical landscape, both in the euro area and globally. Trade tensions could rise further, increasing the risk of events materializing at the bottom.

Some analysts fear that Trump's second term could bring a much worse repeat of the former Republican president's 2018-2019 trade war with China, with ramifications for Europe and possible retaliation.

Nagel, for his part, said Trump's promised tariffs would disrupt international trade, but he was "not overly concerned" about their impact on inflation.

"Global integration would have to slow significantly to cause a noticeable increase in inflationary pressures and, so far, we haven't seen that," he added.

The ECB has cut interest rates three times since June, while inflation in the euro area is approaching its 2% target. But it has also cut its economic forecasts twice, as a recovery in the 20 countries that share the euro appears out of reach.

Nagel argued that the ECB could not "completely neglect output" and would not react to movements in inflation.

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