ECB boss warns that trade war could hurt global growth
An all-out trade war will harm the global economy and dampen inflation and could delay the end of the ECB’s bond purchases and low interest rates, the central bank has warned.
Benoit Coeure, who sits on the ECB’s executive board, said today that while the effects of a trade war on inflation would only become visible in the long term, expectations of one were already hurting borrowers and investors.
“Falls in equity prices in response to the US announcement to impose a tariff on steel and aluminium, and prevailing uncertainty on the scope of any retaliatory measures, have already contributed to tighter financial conditions,” Coeure said at an event in Cernobbio, Italy.
He cited an ECB simulation suggesting that a 10 per cent tariff on all US imports and exports would slow the global economy by one per cent in the first year, with the US among the worst hit and the Eurozone suffering a less severe decline.
Currently Eurozone inflation is just below 1.5 per cent, but Coeure warned that a trade war would hurt employment and growth, both of which affect inflation.
“By fuelling uncertainty among market participants, fears of a ‘trade war’ have added to the volatility already witnessed earlier this year in equity markets,” he said. “None of this supports growth and employment.”
That in turn could delay the end of the ECB’s E2.55 trillion (£2.22 trillion) bond-buying programme and affect plans to raise interest rates next year.