A trade war could reduce the growth of the eurozone by half a percentage point and increase inflation
A trade war between the US and Europe could reduce the growth of the eurozone by half a percentage point and increase inflation, European Central Bank (ECB) chief Christine Lagarde warned on Thursday.
US President Donald Trump threatens to impose 25% of all products from the European Union, which has a significant trade surplus with the US.
Speaking to the European Parliament, Mrs Lagarde said that the eurozone is “particularly exposed to changes in commercial policies”.
According to the ECB’s analysis, 25% US duties could hurt the growth of the eurozone by about 0.3 percentage points in the first year and, if Europe reverses, the decline could reach half a percentage point, he added.
The eurozone has already been deleting poor growth in recent years as it is facing high production costs and weak demand from key commercial partners.
In its latest forecasts published earlier this month, the ECB predicted only 0.9% for the eurozone this year and 1.2% in 2026.
A US-EU trade war would also make the prospects for consumer prices “significantly more uncertain”, Ms Lagarde warned, adding that inflation could increase by about half a percentage point in the short term.
The eurozone inflation, which jumped after Russia’s invasion of Ukraine, gradually slows down to the 2% target of the ECB, reaching 2.3% in March.
While noting that estimates were subject to “very uncertainty”, Mrs Lagarde called on the European Union to respond, creating closer trade relations worldwide.
“The answer to the current shift in US trade policy should be more, no less, commercial integration, both with commercial partners around the world and within the EU,” Ms Lagarde stressed.
“Commercial integration, including free trade agreements, has been a lever for economic prosperity and can protect against unilateral commercial measures,” he said.
The ECB again reduced interest rates during its last meeting earlier in March, but its next move is uncertain, as policy makers evaluate the impact of US trade policies and European plans to strengthen defense spending.
Source: KYPE